Adult daughter with thin credit needs to learn independence
Dear Opening Credits,
My daughter is 28 years old and has never had a credit card. She is now interested in purchasing a house. In order to help her establish good credit, will adding her to my credit card as an authorized user help her improve her credit rating quickly? Can you give me other advice to help her establish credit quickly? -- Jeanie
My first reaction when reading your letter, Jeanie, is to warn against getting overly involved in your daughter's finances. I understand wanting to help her buy a home -- many parents are in the position to gift or lend cash for a down payment and are happy to do so -- but I do not recommend merging your credit history and other personal monetary affairs with hers so she can achieve her goal. Legally, she's been an adult for 10 years, and by now, she should be independent, particularly when it comes to her credit. And if she can't become autonomous soon, then she needs to reconsider becoming a homeowner in the first place.
So rather than have her piggyback on your good name, I strongly suggest your daughter explore her alternatives. I am happy to say that she has two very good options to build her credit history fairly quickly on her own:
- Obtain a secured credit card. With a secured credit card, she would deposit a relatively small sum of money (usually a few hundred dollars) into a bank or credit union. That financial institution would then provide her with a credit card with a charging limit of the amount she put down. If she fails to pay, they will take what she owes out of her initial deposit. The secured nature of these accounts makes them pretty easy to qualify for, as the financial institution assumes so little lending risk.
- Obtain a retail account. Sometimes qualifying for a store credit card is easier than an unsecured general purpose card -- the kind where you can use pretty much anywhere and that doesn't require collateral. If this sounds good to your daughter, have her consider stores where she normally shops and where she can purchase a wide variety of items.
As soon as she has any type of credit card in her hands, she should start using it regularly and responsibly: Charge what she needs, then pay off the balance in its entirety by or before the due date. With this simple process, she is hitting the two weightiest factors in a credit score -- debt-to-credit-limit ratio and payment history. In six months to a year, she will have created a credit history that results in a credit score that many mortgage lenders will consider attractive.
That said, my guess is that your daughter already has a credit history and score in place, even without having a credit card. After all, one doesn't need plastic to establish a borrowing and repaying history. For example, did she go to college and take out student loans? If she did, the financial institution that's servicing them is reporting her payment activity to the three major reporting bureaus and a score is being generated. The same goes for vehicle financing. Did she ever purchase a car with a loan from a bank, either on her own or with your help? If the answer is yes, then her payment history is also in the mix.
To find out where she really stands, have her access copies of her credit reports with their credit scores as soon as possible. As mandated by federal law, consumers are entitled to one free copy per year from each of the three major credit reports via AnnualCreditReport.com. Once she has them, she can begin to correct any errors or past problems she may have as well.
Returning to the issue of whether or not to include your daughter on your accounts -- I know my initial response may have sounded a bit harsh, but I've seen too many sad situations where parents became saddled with their children's debts or had their credit ratings ruined. And, really, this is her time to grab the steering wheel and drive alone. I, too, am a mom and can empathize with you wanting to lend a hand, but bear the following words of wisdom in mind:
"A mother is not a person to lean on but a person to make leaning unnecessary." -- Dorothy Canfield Fisher
See related: Piggybacking gets clemency from FICO, Consumers, businesses grapple with the thin-file problem, Credit Card Help: What you need to know about credit reports, scores, Bailing family members out of debt: Think twice, When family members ruin your credit
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Published: June 17, 2009
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