Daughter's credit at risk when mom defaults

A mom's card default puts her authorized user daughter's credit in jeopardy

By Erica Sandberg

Opening Credits

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. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I opened a few credit cards in my name only, and as a courtesy, the credit card companies provided a credit card for my daughter, who is a minor. I have since defaulted on these credit cards. Will my daughter be responsible, and will they show up on her credit report? -- Cindy 

Working on the assumption that your daughter did have an authorized user card, then you were the main account holder. She was nothing more than a guest. In other words, she was able to use the credit card to make purchases, but is not responsible for paying what she charged. Well, responsible to you, maybe, but not to the credit card company. Also know that because people under the age of 18 cannot generally enter into a legal contract, she would not be liable for the debt anyway.

Sharing accounts -- sometimes called "piggybacking" -- can work out fine, as long as the primary account holder makes good on the debt. But piggybacking can backfire if accounts go into default. For unstated reasons, you allowed the accounts to go into default. This means that you did not send a payment for at least a few months.

One late payment isn't going to be too damaging to a credit report, but two or more sure is, especially if it happened recently. And if you don't pay what you should for long enough, the accounts eventually go into default, and the creditor either sues you or sells the balance to a collection agency. At that point, whichever direction it takes, your credit really takes a nosedive. Fees and interest pile up, too, so your balance escalates.

But it's not just your credit history that's taking a hit, Cindy. As an authorized account holder, your daughter's credit is also reeling from your not paying. The activity for those conjoined accounts is almost certainly showing up on her credit reports and making a mess. I recommend you immediately write or call the card companies and request that she be removed as an authorized user from those accounts. Once she has been removed, the negative information should fall off her credit report relatively quickly.

To mitigate the damage, get back on track. Contact the creditor or collector who has the accounts now and pay what you owe in full. If you don't have the cash accessible right now, scare up the funds any way you can -- sell things, work extra hours, reduce expenses to the bare minimum. This is what will happen to your credit reports if you do:

You can expedite the elevation of your credit rating by using any other revolving accounts that are still open in an appropriate fashion: Charge regularly, pay on time and don't carry a balance. If you don't have any active credit or charge cards with which to do this, consider opening a secured credit account and go slowly.

And in the future, keep your credit separate. It's easier and safer.

See related: How to remove an authorized user from a credit card account, What to expect when you're made an authorized user on a credit card, How being an authorized user can hurt your credit score

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: June 1, 2011

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