Act fast to remove authorized users when your credit goes south
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 son and my daughter as authorized users on my credit card while they were in college in order to facilitate their need to purchase school supplies, food and minor expenses. I paid their education either by credit card, loans or checks. Now my Capital One account is in default because I lost my job and ended up taking a position that pays $20,000 less. I tried to negotiate a plan with the credit card company. They refused to lower my interest rate, which they have at almost 30 percent, and demanded a full payment immediately, which I am unable to do. Now the situation is pending with an attorney they have appointed, but this status is affecting my children's credit score. They were only authorized users on the card and are not responsible for the debt. My son is trying to establish credit to purchase a car, but his credit score is being hurt by this pending situation. The credit card company will not talk to him and will not talk to me -- they immediately refer us to the attorney holding the case. How can I remove my son and my daughter off the credit card as authorized users since they have not used it in over two years and are not dependents anymore? Should my attorney handle this, or can I just send a letter to the credit bureaus? Please help. -- Desperate Mom In Oregon
Dear Desperate Mom In Oregon,
Your situation perfectly illustrates why combining credit accounts with others can lead to great financial distress for all concerned.
I do get why you added your college-aged children to your credit card as authorized users -- a technique known as "piggybacking." Providing them with the ability to make autonomous spending decisions not only benefits them, it frees you up from having to approve every transaction. Also if you, as the primary account holder, keep the account in good standing, they gain by having the positive information from that account reported to their own credit reports. The problem is, if payments are made late, the balance nears or exceeds the credit limit or the account slides into collections or a lawsuit, all authorized users also suffer the damage.
So what can be done now? The short answer is that you absolutely can have your children removed from the card. The account in question was issued to you based on your financial status and credit history, not theirs. Your son and daughter are merely guests on the account, and it is your right as the host to remove them any time you wish.
Collection agencies and lawyers can be difficult to deal with, but they do have to communicate with you. Immediately write and send a letter to both Capital One and its attorney, explaining that you want your children expunged from the account. Give a date for when you expect their names to be removed (10 business days from that day's date is reasonable). Of course, you can have your attorney handle this for you, but give it a try yourself first. After all, a lawyer's fees will eat up funds you clearly don't have right now. If they are still resistant to your request, you can always call in the hired guns.
Once your kids are removed from your Capital One account, their credit reports should recover from the damage quickly, as all evidence of that account will be gone. It's a good idea to have them pull their reports to make sure the information has been deleted, though. If it's not, then you'll have to deal with the bureaus.
Now, on to a couple of other important issues, Desperate Mom in Oregon. I know this warning comes too late, but I never recommend paying for higher education expenses -- especially someone else's -- with credit cards or loans (with the possible exception of PLUS loans, which are student loans granted to parents, as they typically have pretty decent terms and interest rates). Almost all college students are eligible to receive their own student loans, and if you weren't able to cover the cost with savings, it would have been a better idea for them to have borrowed independently.
As far as that delinquent account, you've got to deal with it -- and fast. With an interest rate of nearly 30 percent, the balance is escalating. I understand that you have tried to negotiate with them with no success, but have you tried offering money as an enticement? Try sending a partial payment, with a promissory letter saying something like: "I can't afford to pay the total balance now, but here's my first check of X, and I will send you the same or more every month on this date until the account is paid in full." It's possible to avoid a lawsuit this way. You may also consider selling some assets and applying the proceeds to the balance due. With a bulk sum, you can possibly even arrange a debt settlement.
Yet another option is to have your son and daughter pay you back. You were kind enough to support them through their college years, and now your son wants to buy a car. How about kicking some cash your way first?
See related: How debt settlement works and how it affects credit scores, The basics of debt settlement, 11 tips for dealing with debt collectors, Piggybacking, meant to jump-start credit, can backfire, Cure your defaulted student loan in six steps, Authorized users don't have to pay for cardholder missteps, College students love, hate new credit card law, Credit card marketers drop out of college
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.
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Published: October 14, 2009