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.
Dear Opening Credits,
I opened a few credit cards in my name only, and as a courtesy, the credit card companies provided a credit card for my daughter, who is a minor. I have since defaulted on these credit cards. Will my daughter be responsible, and will they show up on her credit report? — Cindy
Do you recall asking the credit card companies to provide your daughter with an authorized user card? I bet you did and that’s what she got. I have never heard of an issuer sending unsolicited credit cards to minors as a courtesy — at least not without a request by the primary account holder. I can’t imagine it would be a co-signed account either, as they don’t just hand over joint cards to anyone — much less to a minor — without going through a qualifying process.
Working on the assumption that your daughter did have an authorized user card, then you were the main account holder. She was nothing more than a guest. In other words, she was able to use the credit card to make purchases, but is not responsible for paying what she charged. Well, responsible to you, maybe, but not to the credit card company. Also know that because people under the age of 18 cannot generally enter into a legal contract, she would not be liable for the debt anyway.
Sharing accounts — sometimes called “piggybacking” — can work out fine, as long as the primary account holder makes good on the debt. But piggybacking can backfire if accounts go into default. For unstated reasons, you allowed the accounts to go into default. This means that you did not send a payment for at least a few months.
One late payment isn’t going to be too damaging to a credit report, but two or more sure is, especially if it happened recently. And if you don’t pay what you should for long enough, the accounts eventually go into default, and the creditor either sues you or sells the balance to a collection agency. At that point, whichever direction it takes, your credit really takes a nosedive. Fees and interest pile up, too, so your balance escalates.
But it’s not just your credit history that’s taking a hit, Cindy. As an authorized account holder, your daughter’s credit is also reeling from your not paying. The activity for those conjoined accounts is almost certainly showing up on her credit reports and making a mess. I recommend you immediately write or call the card companies and request that she be removed as an authorized user from those accounts. Once she has been removed, the negative information should fall off her credit report relatively quickly.
To mitigate the damage, get back on track. Contact the creditor or collector who has the accounts now and pay what you owe in full. If you don’t have the cash accessible right now, scare up the funds any way you can — sell things, work extra hours, reduce expenses to the bare minimum. This is what will happen to your credit reports if you do:
1. The accounts will read as “paid.”
2. Evidence of the defaults will remain on your credit report for a full seven years.
3. The negative impact of the defaults will lose its weight after a couple of years.
You can expedite the elevation of your credit rating by using any other revolving accounts that are still open in an appropriate fashion: Charge regularly, pay on time and don’t carry a balance. If you don’t have any active credit or charge cards with which to do this, consider opening a secured credit account and go slowly.
And in the future, keep your credit separate. It’s easier and safer.
Meet CreditCards.com’s reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com’s Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.