I'm an authorized user on high-balance cards; what to do?

Before dropping them, consider other credit scoring factors beyond utilization

Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.

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Question

Dear Speaking of Credit
I am an authorized user on six of my dad’s credit cards, but his credit utilization is well over 90 percent on all cards. I am a freshman in college and this is affecting my credit score. Should I ask him to remove me, or will this hurt my score even more?

I have a Discover card in my name now, which I am paying perfectly. I usually pay my small balance off each month or every two weeks.

What should I do to improve my score? The simulator shows that if he pays down his cards $10,000 plus, my score will go up drastically. Should I be patient or not? – Cole

Answer

Dear Cole,
When you consider that having your name removed as an authorized user can be as simple as you or your dad making a phone call to the card company, why even wait to drop those 90 percentage points off of your credit utilization?

Credit utilization is important, but there are other factors

Perhaps if credit utilization made up your entire credit score, then yes, lowering it from 90 percent down to around 0 would be a no-brainer.

However, and as you know, there are always multiple factors influencing credit scores.

While under almost any scenario, you’re unlikely to find yourself with a lower score following the elimination of those highly utilized cards, failing to look at some easily overlooked consequences from such a decision could leave you with a lower future score than might be achieved otherwise. 

We can get a good perspective on some potential scoring impacts you might face in this decision by focusing on three sets of scoring factors that make up most (80 percent) of your score:

  • On-time payment record.
    Though we don’t know if your dad has been late on any of his card payments, we’ll assume he has at least paid the minimum each month – all the score requires. If not, even the most minor delinquency could affect the scores for both of you for up to seven years – a situation in which you should always remove yourself as an authorized user.

  • Outstanding card balance.
    You have already identified that 90 percent utilization is the major problem those cards present to your score. However, keep in mind that no matter how highly utilized an account has been in the past, it’s only those percentages as of the time a score is being calculated that count in your score. This can mean that once your dad brings those balances down, any prior high utilization will be forgiven.

  • Account age.
    Despite being the least influential of these sets of scoring factors, the length of credit history associated with your authorized user cards is undoubtedly helping your score. This help can be especially noticeable in your score since your dad’s cards appear to be older than your Discover card. And when credit age is at stake, older is always better.

Considering your future credit needs – and your father’s plans

In a perfect world, your dad would simply pay his cards down by $10,000, as your simulator recommends, and the scores for both of you would jump thanks to a combination of flawlessly on-time payments, low utilization and a long credit history. Yet the real world demands that we add another layer to this decision process via the following questions:

  • What are your father’s plans for those high-card balances? Does he plan to pay them down anytime soon? Or is money too tight to make more than small monthly payments for the foreseeable future?
     

    Video: What is your credit utilization ratio?



  • What are your upcoming needs for a high credit score? Will you be renting an apartment, financing a car or applying for a mortgage over the next year or so? Or are you ready to sit tight with no big financial changes on the horizon?

Will removal hurt your score even more?

Once you have some answers to the above questions, you should have a good feel for whether to keep or get rid of those authorized user cards. For example, as you apply what’s been noted:

  • Determine whether your dad will be able to pay those cards down within a time frame that works with your financial goals. Keep in mind that despite the high utilization, the longer those cards remain on your credit report the more points you’ll see from account age-related factors.

  • If it’s not realistic to expect him to make a dent in that debt, and regardless of your own plans, your score will benefit if those cards are gone from your credit report.

What else should you do to improve your score?

No matter what you decide to do, one additional move you can make to help raise your credit score over the longer haul, if not sooner, is to open another credit card of your own.

  • It won’t matter whether the card is unsecured or secured, as long as it’s reported to the credit bureaus each month – which tends to be the practice for all unsecured and most secured cards.

  • At least one more card held by you as the primary user can both provide the safety cushion of multiple credit sources and, most importantly for your score, make it easier to keep your overall credit utilization low by increasing your credit availability.

The decision over whether to keep or say goodbye to those authorized user cards now rests squarely in your hands. Once the decision is made, you can take action yourself by simply calling or writing the card issuer. For details, see “How to remove an authorized user from a card account.”

Good luck with school and your credit score!

See related: 6 questions to ask when adding an authorized user to your card, How to graduate from parents’ credit, cut “authorized user” cord

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Updated: 12-15-2017