The world of credit cards can get rough, especially if you don’t have credit of your own to speak of. Instead of feeling discouraged, you might be able to have your parents help you on a credit card. No, you won’t be using the credit card — you’ll just be piggybacking off their credit card. You see, the process is called being an authorized user, but the level of power you get will depend on the deal that you can work out with your parents. Considering that they’ll be on the hook for anything that you charge up and don’t pay, chances are good that they might go ahead and add you as an authorized user, but they won’t actually go ahead and send you a card until you’ve proved that you can be responsible.
In 2008, FICO came out with a statement that said that they would no longer be honoring the authorized user program in terms of credit score, but they reversed that. This means that yes, if you can get on an authorized user deal with someone, your credit score has the potential go way up. Not only do you get the power to actually improve your credit score, you also get the history behind the credit card. So if your parents have had that card for 10 years, guess what? You get 10 years of hopefully good payment history.
However, what you have to understand is that the knife does indeed cut both ways. You will need to make sure that you’re thinking this through when it comes time to actually be added. If your parents are the type to make late payments or even not pay for a few months in some cases, you might want to be aware that those markers come back on you too as the authorized user. This would be the same way if you ran up their credit and didn’t bother paying it back. It would hurt them greatly. When you agree to be an authorized user, you’re taking on the responsibilities of that card as well. It’s almost like being a co-signer in some ways, because the credit card company will not hesitate to shake you down in case you really do have enough money to go ahead and pay them.
This means that it’s a good fit for people that are just getting out on their own, or newlyweds that want to take advantage of the other’s good credit history. If you are going to have someone add you to their credit card, make sure that you treat it with even more respect than you might if it was just your credit card. They are trusting that you’ll make the right decisions. Do you really want to dishonor that trust bond by making bad financial decisions? If you have to, start tracking your spending on paper to make sure that you’re on track. In addition, you don’t want to end up ignoring your own credit needs.
We still think that you should make sure that you build credit in other ways as well. For example, if you really want to make sure that you get credit on your own, you might want to apply for a few lower-tier credit cards. Orchard Bank has a credit card that’s designed to help you build credit.
No matter what type of credit that you get in your name, you will want to make sure that you actually take good care of it. This means that you don’t want to charge up the whole card — no more than half the card should be utilized. In addition, you need to make sure that you pay that card off each and every month to the best of your ability. Never make just the minimum payment — that’s only going to hold you back on your financial goals. There’s a lot of talk about just paying the minimum, but we feel that if you have to pay the minimum only, you have a greater money problem than you might realize.
Speaking of money, saving money is just as important as building credit. Make sure that you give your attentions over to the construction of a good emergency fund. Yes, we emphasize it a lot, but it’s really that important.
Ready to jump right in? Don’t let us stop you — good luck!