When's a good time to drop dad's card?
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,
Can you tell me if I'm doing the right things? I'm 23 and have one credit card, which is a Visa that my dad got me when I was in college. I have
another Visa that is my bank card that I use for everything except for my gym dues. The dues are only $50 and automatically
go on the card I have with my Dad and automatically gets paid. I've been doing this since I was 19. Is what I'm doing with my cards enough to build credit?
You are most certainly on the road to
fantastic credit! Can you do even better? Probably, but only with more of what
you're already doing.
The plastic that you have from
your bank sounds like a Visa debit card rather than a credit card. As you
probably know, every time you use it, the money comes straight out of your
checking account. There's no borrowing involved so the activity is not showing
up on your credit report.
However, that doesn't mean that your
good work isn't going unnoticed. You've been developing a positive relationship
with your bank, and that will help you down the line. One day you may want to
buy a car or even a home, and the alliance you've formed with your bank can
come in mighty handy. As a longstanding customer, you're valued. Because of
that, you may qualify for a loan with better terms than someone the bank has no
Your other Visa is indeed a credit
card, and while your father helped you get it with his signature, evidence of
it has been appearing on your (and his) credit report since the day it was
opened. Each time your gym membership dues were added to your account, the
issuer stepped in to front you the money. Then, when the cash came out of your
checking account on a certain day, the issuer got its funds back.
This seamless, steady credit and cash
flow has been making you look wonderful in the eyes of your current and future
lenders. Not only has it been recorded on your credit reports, but the
information has been factored into your credit scores. Payment history and
credit utilization are extremely important in these scoring systems. Since
you've paid on time and not carried over a balance, while also using the card
on a regular basis for four years, you've been doing everything right.
The only other action I can recommend
is for you to obtain a different card, in your name only. It was lovely of your
dad to step in and help out, but now that you're above the age that a co-signer
or joint account owner is necessary, I have no doubt that you can get your own
Before applying, check your credit
rating to see exactly where you stand today. First, go to AnnualCreditReport.com
to order free copies of your credit reports from each of the big three credit
bureaus (Experian, Equifax and TransUnion). Make sure they are correct and free
of fraud. If you notice anything that seems wrong, dispute it with the bureaus
online. You don't want an error to hold you back. Then, get your FICO scores
from myFico.com for about $20 each (each credit bureau generates a FICO score
based on your credit report). You don't have to order all three, just one or
two will do. Excellent scores are in the mid-700s and up, so see where yours
are. Then, armed with that information, go to the CardMatch page on this site
to see which types of cards you qualify for. Review the terms and interest
rates of each card and pick the one that seems to be the best fit (hint: look
for the lowest annual interest rate and low or no annual fee).
Once approved, use it just as
fabulously as the one you have with your dad. Oh, and you can choose to keep
that original account active or, after you've established a great relationship
with the fresh account, either close it or have your name removed from the
account (talk to your father about this, though, as canceling the account may
affect his credit rating if it is a joint account). For scoring purposes, it is
usually better to keep older accounts alive, but you have to weigh that against
being totally independent. Personally, I'd take the small and temporary hit,
but that's up to you.
See related: First credit card rules of the road, Do your homework when shopping for your first credit card
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.
Send your question to Erica.
Published: November 6, 2013