Daughter's credit in trouble after Mom defaults on shared card
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I added my then minor
daughter as an authorized user on one of my credit cards that has since gone
into default. My daughter is now ready to complete the FAFSA application, and I
am concerned that it will affect her in a negative way. I have contacted the
credit card company, and she has been removed as an authorized user. Is there
anything else I need to do? Please help! -- Angela
No need to worry -- you've already
taken corrective action by removing your daughter's name from your
It's true that authorized users have
the same information woven into their consumer credit reports as the primary account
owner. This kind of arrangement can work quite well, as long as the owner (who
is entirely responsible for the bill) pays on time and keeps the debt nice and
low. The authorized user will then reap the positive credit rating rewards.
However, you just described a snag in
the fabric. In the event that the account goes into a negative standing, the
user's credit report reflects that as well. Yet, even in this circumstance,
there are upsides to being a guest on a credit card account. Unlike a co-signing
situation, where liability is shared equally among the owners and each person
is stuck with the account until it's closed, authorized users can be taken off the account at any time. According to the credit reporting bureau Experian, when that guest status is revoked, the information for
that account will no longer show up on the defunct user's file.
Regarding your daughter's credit rating
and the FAFSA (Free Application for
Federal Student Aid), I wouldn't be excessively concerned about her or your
credit rating as long as she's going for government-backed
loans, such as Stafford and Perkins
loans. These products are the most common types of
loans for students and credit history is not a
deciding factor for qualification. There is an assumption that the applicant is
young and inexperienced and hasn't had the opportunity to develop a pattern.
However, your own credit
rating will be a factor if you ever want to take out loans on your daughter's
behalf. Many parents do to make up for a financing gap. For example, PLUS loans
are very popular. With them, you would be the borrower,
so the lender would check your credit and other financial information to
Whether you plan to help with an
additional loan or not, I encourage you to get your credit back on the right
track. Pay that debt down and use your cards well from this point forward.
While the derogatory notation will remain on your reports for seven years, it
will become increasingly benign as time passes.
Back to your daughter ... I'd love her
to graduate with an excellent credit history. Eventually, she'll be out of
college and looking for a place to live. Landlords will pull her credit report
and she'll want it to look great. The same may hold true for a job, as some
employers may use them to judge responsibility.
Your daughter can probably get a secured credit card in her name now. I recommend them for people who are just
entering the banking world. They're fairly easy to get because the credit line
is secured by a cash deposit. When she has the card, she should charge
inexpensive items throughout the month, and then pay the balance due on time
and in full.
I wish you both the best!
See related: Act fast to remove authorized users when your credit goes south
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: January 30, 2013
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