The dark side of piggybackingMistakes by an account holder hurt an authorized user's credit, but not forever
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Opening Credits
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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 put my son's name on my
credit as a user when he started college, if he needed to buy books. He went to
apply for an auto loan and found that Chase has put my card on his credit
report. When I was asked over the phone in 2006 if I wanted to put anyone on my
account to use the card, I gave his number, but I was not aware that they would
hold him responsible for my debt. They said he is paying for my financial hardship.
How can I fix this? He called the company, and his name cannot be found, but it
is on his record. He doesn't deserve this. -- Ola
Dear Ola,
I'm afraid that the finance company
your son approached for the car loan is telling the truth: He is indeed paying
for the way you mishandled the credit card.
In fact, you just described a major
problem associated with "piggybacking" on someone else's credit account. As an
authorized user, your son was able to enjoy the benefits of having a card with
his name on it. However, you are the primary account holder and, for whatever
reason, you got into some trouble. Perhaps you charged up to or over your
credit limit or you missed some payments. Maybe the account was charged off and
sent to a collection agency.
Whatever happened, the activity is
being reported on not just your credit report, but your son's as well. Why?
Because he's an authorized user, and that's what happens. Had you used the
account well, his credit report would have reflected positive behavior instead,
and he would have come out ahead.
Now don't get me wrong, Ola, I'm not
implying that you're a bad person. Plenty of people borrow improperly and
suffer the repercussions. And it sounds as though you really didn't understand
the implications of adding someone to your credit account before agreeing to
it. Then again, it appears that you were a little foggy on how to use your
credit card well in the first place.
Before I cover what you can do to fix
the problems, let me alleviate any worry you might have about your son being
responsible for your debt. He's not. When you got the card, the creditor
assessed only your financial and personal information. They didn't look at his
at all. For this reason, you are the only cardholder who is responsible for the
debt. I'm not sure why "they" can't find his name, but obviously he is an
account holder. Not only is his name imprinted on the card, but the information
is on his credit report.
Thankfully, your son can remove himself as authorized user from your account with a quick call to the credit issuer.
When he does, the derogatory data will be removed from his credit report. It
will take about a month for the information to be removed, so have him [%Link?type=article&id=2530&text="check his
credit reports"%] to make sure all is well before applying for a car loan again.
As for you, you've got to clear up this
mess for your own credit files. The steps involved are easy, but the process of
following them may not be pain-free:
- If you have debt, do everything possible to pay it down
quickly. Cut down on expenses or work more, then apply all excess funds to the
debt.
- Stop charging until the account is at zero balance and you
feel confident you know how to use credit appropriately.
- From this moment forward, pay by or before the due date.
- After six to 12 months of big, timely payments, call your
credit card company and request an interest rate reduction. The lower your
rates are, the less you'll be charged in finance fees and the more of your
payment will go to the balance.
No one is born knowing how to manage
money and credit -- you've got to actively learn the skill. More, when you
enter into a financial contract, it is your responsibility to know what you're
doing. Ignorance is neither bliss nor an excuse.
See related: Cardholders' mistakes can bring down authorized users' credit score, How being an authorized user can hurt your credit score, 11 tips for dealing with debt collection, collectors, Credit card issuers required to 'cure' penalty interest rates
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: October 20, 2010
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