Credit scores: Can another card user hurt your credit rating?

Credit scores for children and spouses can be helped by adding then as authorized users on your own credit card. But does that put your own credit scores at risk from their behavior?

Paul Sakuma/AP/File
Steve Wheelock holds up his Discover Card along with his American Express, Bank of America and Capital One Visa credit cards in San Francisco in this June 2011 file photo. Adding your children as authorized users on your card can help build their credit scores, but make sure it doesn't hurt yours.

Helping your spouse or kids establish credit by “piggybacking” on yours is a nice thing to do. But is it wise? Here’s an email I recently received…

Is my credit being affected by adding my young adult daughter as an authorized user on my credit card? She doesn’t actually have a card in her possession, nor is she using it in any way. But they told me she would benefit from my monthly payoffs of the card. I wonder now if I am also tied to her credit in any way. Although not bad, there just isn’t much to go on as of yet. She is very responsible and hard working and quite trustworthy. However, I’m not naive enough to know that none of us can predict the future. What do you recommend?
 Thank you!
 – Trish

Here’s your answer, Trish!

First, don’t worry about your daughter’s credit (or lack thereof) hurting or otherwise affecting yours. When you allow someone to become an authorized user on your account, they’re linked to your credit, but you’re not linked to theirs.

While allowing your daughter to take a ride on your credit history is a nice thing to do, and it certainly can’t hurt, don’t expect miracles. Since your daughter isn’t liable for the bill – it’s still your sole liability – the boost to her credit may not be as great as you think.

Here’s what credit reporting agency Experian says on the subject. It’s about adding a spouse, but the idea is the same…

Including your wife as an authorized user will help her establish a credit history.

Authorized user accounts are included in a credit report and can be considered when making lending decisions. However, an authorized user has no responsibility for repayment of the debt. For that reason, they often have less bearing on a lender’s decision, and may not be included in some credit score calculations.

Although authorized user accounts are not always included in credit scores, they will result in a credit history being established and eventually can help your wife qualify independently for her own accounts.

In addition, in order for an authorized user to benefit from someone else’s credit history, there should be a credit card issued in their name. You say, “she doesn’t actually have a card in her possession,” which I’m reading as: A card exists, but she doesn’t physically have it. If so, that’s good. Without a card issued in her name, FICO – generator of the most widely used credit score – won’t count it when they compute her credit score.

What would be more beneficial to help your daughter establish credit is to have a joint account with her. That means you establish a credit account using both of your credit histories, and she’s equally responsible for the debt. Obviously, these types of accounts are potentially more problematic, but if you treat it the same way as you are the current account – allowing her no access to the card – it should be relatively low risk.

Keep in mind, however, that if she does end up with a credit card in her purse, your credit will be vulnerable if bills go unpaid. As a joint account holder, she has full access and full responsibility for the debt. Which means there’s nothing preventing her from simply calling the issuing bank and requesting a card. So you’d want to do this only in situations where you feel comfortable that won’t occur.

What if the unthinkable happens? As a joint account holder, you can call the issuer and close the account to new purchases, then cancel the account. (See my recent post Ask Stacy: Can I Get My Sister Off My Credit Card?) But as anyone who’s had a credit card knows, it doesn’t take long to rack up some serious debt. So tread cautiously.

Stacy Johnson is the president and founder of  Money Talks News, a consumer/personal finance TV news feature that airs in about 80 cities as well as around the Web. This column first appeared in Money Talks News.

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