Account management

Graduating from authorized user to master of your own credit card


The ‘natural method’ of building credit works fine for most: Get a little loan, keep up payments, then advance to bigger loans as needs grow

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Question for the expertDear Credit Care,
I have my son on a credit card as an authorized user. Does this help him with his credit score? Would it help more if he were co-owner? — Joanne

Answer for the expertDear Joanne,
Yes, as long as the credit card account is in good standing with no late payments and is well below the credit limit for the account, it should be providing your son with a positive credit history. It is not necessary for your son to be included as a joint owner on the account for him to benefit from the positive history of the account. In fact, it would be better for him to remain an authorized user. The reason is because as an authorized user, he is in no way financially responsible for the account. As a joint owner, the creditor would expect your son to pay any balance on the account should you be unable to pay.

If your son needs to build a credit history of his own, he has several other options that will help him reach that goal. The credit scoring models help potential creditors, employers, landlords and insurers assess risk. For your son to demonstrate that he is a good risk, he must illustrate that he can manage both installment and revolving credit accounts successfully.

Most people build credit naturally as they age and circumstances require borrowing for such things as a car, college education, etc., and as they have the income to support paying off the credit acquired. To remain out of unwanted debt, I suggest that your son follow this path. In other words, I would avoid acquiring additional credit for the sole purpose of a good credit score.

Your son currently has one revolving credit account being reported and that is your credit card account where he is an authorized user. If he has the income to support it, to help him illustrate that he can manage an installment loan, he might consider a passbook savings loan. These loans are secured by a deposit made with the bank issuing the loan. The loan is repaid at a competitive interest rate with a regular monthly payment for a term of typically one to three years. To ensure that the loan boosts his credit, be sure that the bank issuing the loan reports to the three major credit bureaus. Many banks that offer these types of loan don’t report them to the bureaus.

Once the passbook loan has been established and paid for at least six months or a year, your son might consider applying for a car loan — if he is in need of a vehicle and has the income to repay the loan. To assure no problems down the road, it is a good idea to make a down payment on the loan of 20 percent. The car will likely decrease in value immediately after the purchase. A sizable down payment will help prevent being upside down in the loan (owe more than the car is worth). It is important to avoid being upside down should something happen that prevents your son from being able to make the monthly payment. In such a case, the car could be sold and the proceeds would most likely be enough to pay off the loan balance.

Also, your son could apply for a credit card in his own name, should he be in a position where he needs one, and has a plan for how he will use the credit, and more importantly, how he will pay off what he purchases using the card.

Handle your credit with care!

See related:Steps to build good credit with your first credit card

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