Young to credit? Your parents’ well-aged card could help
Dear Speaking of Credit,
I currently have two credit cards open with an age of history of only 1.5 years. My parents have a credit card that’s 15 years old. If they add me as an authorized user, will the age of my credit card history go up to theirs for that card? – Jeanie
Significant aging isn’t usually something we aspire to, but your credit profile should.
By adding you as an authorized user, you will add length to your card history in your credit report, and that will boost your credit score. Assuming your two existing cards make up your entire credit picture, you will see a significant aging of your credit history the moment that account is added to your credit report.Here’s how it works. Credit scoring formulas assess risk, and length of credit history is part of that assessment, since someone who has used credit successfully for a long time is a lower risk. All open and closed credit accounts (cards and loans) that appear on a credit report contribute equally to the length of credit history calculations. And that’s true whether the account is held individually, jointly or – importantly to you – as an authorized user.
How credit scores view length of credit history
There are three primary ways the FICO scoring formula looks at your length of credit history:
- Average account age: total number of months since each account was opened, divided by the number of accounts.
- Oldest account: earliest date opened.
- Newest account: most-recent date opened.
Again, assuming those two cards are your only accounts presently, adding your parents’ 15 year-old card to your credit file by becoming an authorized user should improve the first two of these three factors by raising the average age from 1.5 years to six years and the age of your oldest account to 15 years. The age of your most recently opened account can only be improved by the passage of time and the absence of any new openings.
Yet, as wise a move as adding this card can be for the length of history portion your score, it will still leave you far short of where the FICO “high achievers” – people with scores above 785 – stand. These consumers tend to have an average account age of 11 years, with the oldest account at 25 years, and the newest opened 28 months ago.
Questions to ask
If you are focusing solely on the effect this card is likely to have on your credit age, a scoring category making up only 15 percent of your score, you may be unaware that there are two more-influential scoring categories this card could also be impacting. Each have the potential to improve on or undo your good work. They are:
- Payment history(35 percent of your score): can help your score when paid on time each month or lower it by more than 100 points with a single late payment.
- Amounts owed (30 percent of your score): can help your score with low credit utilization (balance/limit percentage) or lower it by as much as 45 points if maxed-out.
Therefore, to ensure you are doing more good than harm to your score by taking on this card, get answers to the following questions before becoming an authorized user:
- Have there been any late payments on this card in recent years?
- Is the card’s credit utilization percentage (balance/limit) higher or lower than the combined utilization on your own two cards?
If there have been no late payments and the card’s credit utilization percentage is no higher than on your own two cards, then by all means go for it. Otherwise, hold off for now. Then perhaps revisit the idea at a later date, once any late payments age beyond the seven years that negative information stays on a credit report or the balance is paid down by enough to sufficiently reduce the utilization.
Also, note that even with a perfect payment record and minimal balance, if you ever take yourself off your parents’ card, you could lose some points once it has been removed from your credit report and can no longer contribute positively to your score.
It’s good to take advantage of legitimate scoring opportunities, like those offered by authorized user cards. It’s also good to know that micromanaging your credit is not always necessary to achieve a good score. In fact, unseasoned as your existing credit may be, those two relatively new cards could already be producing a score in the 700+ range. You can achieve that score, and the low rates that go with it, by keeping up with the basics: on-time payments every month, a credit utilization percentage below 10 percent, and no new account openings.