Apply for your first credit card, then remove yourself from Dad's
Time it to keep his positive credit history working for you
Dear Opening Credits,
I have a question about applying for my first credit card. I'm 28 years old and never had the need for a credit card before. My credit score is 712, with zero derogatory marks, zero credit inquiries within two years. Age of credit is seven years, eight months. I have a 100 percent on-time payment history.
The negatives would be $100,000 in student loan debt and the fact that I have been an authorized user on my father's credit card since college (in case of emergencies). My credit score reflects a high credit card usage (78 percent) because my father charges $6,000 a month and pays it in full. I have no need for his credit card, but need my own so it's time to separate.
My question is about timing: Would I be better off applying for my own card before I take myself off his? Or should I get off his card first and then apply for my own (would bring my credit card usage down to 0 percent)? And if I should take myself as an authorized user off his card before applying for a new card, how long should I wait to make sure his card wouldn't still be affecting my credit? I just want to make sure I do it the right way to better my chances of getting approved. -- Anthony
Apply now. Presuming you're citing the FICO system, your current numbers are nearly at the top of the scoring scale. FICOs range from 300 to 850, and those in the upper 600s to the mid-700s are considered "good" by lenders. "Excellent" is anything above that, and you're nearly there. For this reason alone, I say don't change a thing before pursuing an account in your name. Score-wise, you seem to be quite the responsible borrower, which makes you a valuable customer.
The FICO score analyzes all the financial information that is appearing on a consumer's credit reports. Some data is extremely important, such as payment history, which accounts for 35 percent of the score, and maintaining a low debt-to-credit-limit ratio (called credit utilization), at 30 percent. As you can see, the combination of these two factors comprise more than half of the scoring weight. The remaining considerations are the length of credit history, which constitutes 15 percent of your score, the types of credit in use (10 percent) and the pursuit of new credit (also 10 percent).
Credit issuers have no way to determine who is actually using the credit card that you're on -- all they can tell (by pulling your reports and checking your credit score) is that the account is being used, both frequently and perfectly. Therefore, your father's fabulous activity is clearly working to your benefit, without you having to ever swipe or pay. Nice! The only negative on your report is your significant student debt. However, installment loans are not ranked as adversely as revolving balances, such as what you'd have with a credit card. As long as the loan is in positive standing, it's not doing too much damage.
So now is the time to research the credit card accounts for which you likely qualify, then narrow the choices to those that best suit your needs. For example, you can go straight to the "good credit" section of this website and read through the different options that are available to people with scores like yours. There are plenty of rewards cards here, so start thinking. Do you want an account that will be best for travel or one that helps you get a break on gas? Maybe a cash-back card feels right. The choice is yours. Watch for fees. Many rewards cards carry an annual fee. If you don't pay the balance off every month on a rewards card, interest charges can negate any points or miles you accumulate.
Once you identify one, apply and wait. Chances are you'll get it (assuming you also have a steady job, which is also important to a credit issuer).
Now, for what to do about your dad's plastic. After you have your own card, disengage from his. You can call the creditor on your own, or he can do it for you. Soon after you're off the account as an authorized user, the information for it will not be listed on your future credit reports. That means your scores may decrease until you gain your own footing with your new account. Don't worry, though. Unless you need to preserve those high numbers for something else (such as a mortgage or car loan), the drop shouldn't affect you.
As long as you pay down your student loan steadily and use your new card -- always paying on time and keeping the balance to below 30 percent of what you can charge -- your scores will rebound. They should get back to where they were within a year or two.
Finally, thank your father for his help. A gracious way would be to treat him to a nice meal and slap down that card imprinted with your name when the bill comes with an, "I got this, Dad." Just like in the commercials.
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Published: January 21, 2015
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