Sally Herigstad is a certified public accountant and the author of “Help! I Can’t Pay My Bills: Surviving a Financial Crisis” (St. Martin’s Press, 2006). She writes “To Her Credit,” a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.
Dear To Her Credit,
My adult boys are on my credit card as authorized users. They have never used the cards. I was in a bad accident and became disabled. I now will have to file for bankruptcy.
Should I remove them as authorized users before the bankruptcy?
Being authorized users on my card has already damaged their credit. I’m just trying to figure out what I need to do so that they do not have anything negative on their credit report regarding the two credit cards on which they are authorized users. – Angela
Parents often add their children to their credit cards to help them build a credit score. When you add someone to your credit card as an authorized user, the payment history and other information for the card is almost always reported on the new authorized user’s credit report, as well as on yours.
If the card is in good standing, this strategy can give a young person a head start in building a solid credit score.
If all goes well, the younger person then can start building credit on his own. As soon as his credit history is established and he has a strong credit score, he can apply for his own card and then drop the authorized user arrangement so the parent’s finances are no longer entangled.
If things do not go well, however, being an authorized user can do more harm than good to the younger person’s credit. As you’ve discovered, when you have a financial crisis and fall behind on credit card payments, the negative information can sometimes be reported on your sons’ credit reports.
Not all authorized user cards report negative information to an authorized user’s credit report, but many do. One late payment can dramatically lower a person’s otherwise pristine credit score. Being an authorized user on a card in default is a credit score disaster.
Revoke your sons’ authorized user status
Fortunately, the solution is simple, and the results should be fast. Call the credit card company using the number on the back of your credit card, and have both of your sons removed as authorized users from your cards.
The next time the credit card companies report to the credit bureaus, generally within one full billing cycle, your sons will not be on the accounts.
None of the information for that card, past or present, should appear on their reports. (Take note that as the primary account cardholder, canceling the card altogether will not erase your past history on the account from your credit report.)
If your sons haven’t done so already, they need to get their own cards or other form of credit if they are over 21 or can prove they have a steady income.
Credit scoring is a fact of life, and it takes time to build a good history and score. Your sons could probably get started with a gasoline or retail card.
After six months to a year of using that card responsibly by charging small purchases and paying the balance off in full, they could apply for a major credit card.
Another method is to start with a secured credit card, which requires your sons to keep money in an attached account. After your sons prove themselves as reliable credit risks, they can move on to regular credit card accounts.
Seek alternatives to bankruptcy filing
Regarding your own situation, I recommend you do not rush into bankruptcy until you’re sure it’s the best solution for you.
Video: Chapter 7 vs. Chapter 13 bankruptcy
Filing for bankruptcy is stressful, and it’s not as easy or as inexpensive as some ads would lead you to believe. If you have assets, you could lose some of them in the bankruptcy, depending on your situation and the laws in your state.
Bankruptcy is an important tool for dealing with insurmountable debt, but it’s not the only one. If medical bills are your main concern, you may be able to settle for less than the full amount without filing for bankruptcy, for example.
Be sure to get qualified legal advice in your state and carefully examine all your options before you take such an important step as filing for bankruptcy.
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