Dear Opening Credits,
My son's only a sophomore in high school, but I know that he's going to go off to college someday, and I want to get him a head start on his credit. I've heard that if I put him on my American Express card, it can help his credit, but how old do you need to be to do that? And does it really help?
-- Daddy
Dear Daddy,
To answer your last question first: Yes, it really does help.
Adding your son to your credit card account is called "piggybacking." Like the piggyback rides you probably gave him as a child, your son's credit will be getting a piggyback ride from your credit.
Piggybacking will give him an instant credit history. If your credit is in good standing, his new credit life will be, too. (Of course, if your credit is only so-so, you won't be doing him any favors by adding him to your account.)
The risks
You're trying to do your son a favor, and it's a generous one to boot, but piggybacking isn't entirely risk-free.
By adding him as an "authorized user," he can use the account, the account will be reflected on his credit score, but he isn't legally responsible for any of the charges to the account.
If your son has no experience with credit cards, even if you trust him, there may be times when he's tempted to charge more than you want. If you add him to your account as an authorized user, make sure he understands your expectations. If you're concerned about frivolous spending, you could theoretically add him as a user, but not give him the credit card.
You're the adult, and I hope, a responsible one, because if you lose your job and can't make your payments, the negatives that appear on your credit report will also show on your son's. If you decide to run off to Bali, leaving a big balance in your wake, the credit card company can't come after your son for payment, but you will ruin his credit, too.
Most credit card companies don't have an age requirement for someone to be listed as an authorized user on an account. Still, the account has to be originally opened by someone who is over the age of majority, which is 18 in most states. Only if your son is an emancipated minor can he enter into a binding credit card agreement by himself without your help.
Near miss for piggybacking Piggybacking on credit scores has changed a little in the past few years. Some credit repair companies came up with an interesting, if ethically questionable, practice of allowing consumers to sell their good credit scores by adding people with bad credit -- people they didn't know -- as authorized users on their credit card accounts. The person with bad credit would pay a fee to the middleman, who would pay a smaller fee to the person with good credit and keep the rest as profit. Instantly, the bad credit customers would see their scores jump.
To stop this gaming of the credit scoring system, Fair Isaac (the creator of the FICO credit score) said its new credit scoring model -- dubbed FICO '08 because it was expected to be released in 2008, though it eventually came out in 2009 -- wouldn't count authorized users. The company says there are some 50 million authorized user accounts, many of which are owned by parents like you who are trying to give a kid a leg up, so that move could have done some serious damage to lots of innocent people's credit scores. However, in the summer of 2008, Fair Isaac changed its mind, saying it had come up with a secret way to tell if someone was trying to manipulate credit scores in the way promoted by those credit repair companies. The changes were officially released in January 2009, though it will likely be some time before they are fully implemented and have a real impact.
A great start Years ago, when I was still in high school, my father added me as an authorized user on one of his credit cards. That account still stands on my credit report today, and my credit history with one bureau, thanks to Dad, is actually older than I am.
Along with adding your son to your account, give him a few lessons in credit card responsibility. If he learns to pay on time and never charge more than he can afford to pay back, you'll be giving him a wonderful gift: The tools to build his own solid credit score.
Karin's money makeover column "Get With The Plan" can be seen every Sunday in "The Star-Ledger" and "The Trenton Times." She also hosts and writes "Money 911," a multimedia series for MSN Money. Before writing became her main focus, Mueller was the executive producer of CNBC's The Money Club, where she led the team that won the network's first ever Cable ACE Award for Business and Consumer Programming. Mueller lives in New Jersey with her husband, three kids, one guinea pig and one leopard gecko. Whatever they don't eat goes into her retirement savings accounts. A comprehensive archive of her writings is available on her Web site, www.KarinPriceMueller.com.
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