Adding incarcerated brother-in-law to card can rebuild credit

Being an authorized user on a family member's card provides easy credit jump start

Opening Credits columnist Eric Sandberg
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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Question Dear Opening Credits,
My brother-in-law is an inmate at a federal penitentiary. He may be getting out soon and would like to have a good credit rating before he is released. Is it possible to set up a credit card with him as an additional cardholder, but then for me to make a purchase, say, once a month, on his card to get his credit score up? I know it is possible to do that, but is it legal? – Jonathan

Answer

Dear Jonathan,
Your brother-in-law is fortunate to have you on his side. When he’s free, he’ll probably need quite a bit of assistance reintegrating into society. Sadly, it’s not easy for a convicted felon to secure a job, especially a well-paying one. As for credit card companies, they can’t discriminate against a person strictly because he has spent time behind bars, but they do have qualification standards. To obtain an unsecured credit card in his own name, he would need to have a positive and robust credit history behind him and a steady income in front of him.

Even if your brother-in-law does possess the financial means and a positive credit rating now, he wouldn’t be able to get an individually held credit card while he’s incarcerated. I checked with Larry Lawton, an ex-con who is known for his extraordinary work helping ex-offenders after release, and he says inmates are not permitted to apply for loans and credit cards.

Since a record of borrowing and repaying is necessary to establish a credit history, adding him to your credit card as an authorized user is an option. Yes, it’s legal.

As an account owner, you may add others – even teenagers – to your account as guest users. They’re not liable for charges or payments, though. To make your brother-in-law an authorized user, just notify your card issuer that you’d like to add him, which you can do online or over the phone. All you need to provide is his personal identity information. Most credit card issuers allow you to select the type of access you want users to have. For example, you can choose to have a card sent to him or not, or limit transactions to a set figure.

The only reason you might want to refrain from adding him to your account is if you don't have a perfect payment history with that card or carry a high balance from month to month. All of that card's history will transfer to your brother-in-law's credit reports, so you wouldn't be doing him any favors if you add him to a card riddled with late payments or high credit utilization.

However much access you let your brother-in-law have (I would recommend zero, given his present circumstances), your history with that card will appear on his consumer credit reports soon after you assign authorized user status. If you ensure that the account is always in good standing with regular use (that monthly charge you mention is perfect) and by paying the bills on time while also keeping the debt very low, his credit rating will benefit. You don’t need to use his card to transfer the credit history. Just the activity on your card will suffice. FICO and VantageScore turn credit report activity into credit rating scores. A record of perfect payments and a low debt-to-credit limit ratio will go a long way toward increasing your – and his – scores.

If you're going to go this route, do it quickly. Your brother-in-law will need to have at least six months to a year of excellent credit activity on his reports to create a decent credit rating. After his release, have him pull his credit reports at annualcreditreport.com to make sure everything is accurate and check his credit scores to see where he stands (VantageScores are available here on My.CreditCards.com for free).

Although he’ll have your account on his credit reports, he will probably have to start small to get his own credit cards, even when he’s employed. Secured cards might be his best bet, as they're easier to qualify for than unsecured cards because they require a deposit upfront. Whichever card he obtains, remove him from your account the moment he’s equipped with his own plastic. You'll have helped enough at that point. He’ll be ready to start his life with credit over again.

See related: Brother's got a near-perfect score? Go piggybacking, How going to jail impacts your credit, Special report: Managing finances while serving time

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Updated: 11-17-2017