My daughter has asked me to get a credit card with her as a joint holder or at least an authorized user as she has no credit. Will this affect negatively my score of at least 750? What's the best option in this situation? She is trying to build up her credit and hopes by having me as the cardholder but her as a joint and paying on time, etc. that it will help. Is this true?
Thank you for your question about establishing credit.
Your daughter is fortunate that you can help her establish credit. This will offer her more alternatives. You are also correct to be concerned about your credit score. Late payments can seriously damage your credit score.
In order to establish credit your daughter needs to have financial activity that is reported on a credit report, including credit cards, retail and gas station cards, installment Loans. Sometimes rent, if reported by the landlord, is also included.
Establishing credit is an important financial step. Improper usage of credit cards leads to a low credit score, and creates debt that is hard to payback. Establishing credit takes time and should be done gradually. Your daughter will want to prove to the creditors (and you if you are helping her) that she can responsibly handle debt.
I recommend that she follow these steps:
In order to establish credit, you daughter should learn how to handle her personal finances in a responsible manner. She can start with these four practical steps:
- Timely Payments – Always make your payments on time
- Credit Utilization – Don’t max out on your credit lines. Try to pay off your cards each month, but do not go over 30% of your line of credit on any of your cards.
- Credit Mix – To establish a high credit score, have different types of credit.
You are 100% correct in being worried about the effects on your credit score if you mingle your account with your daughter. All activity is registered on all account holders and/or users. That is a double-edged sword. Any positive activity helps build your credit and any negative activity lowers your credit.
Before you read about some possible solutions, here is a brief explanation of the two possible solutions that you mention:
- Ask yourself: how can I make sure the payments will be made on time?
- Ask yourself: how can I make sure she doesn’t abuse the card?
The two main problems that need to be addressed are timely payments and abuse of card. Hopefully, after following the four steps listed above, your daughter now has good financial habits and a game plan.
Her next steps to establish credit are
It is impossible to establish credit overnight. Your credit score is determined by your credit history. It takes time for activity to be reported, and it is virtually impossible to obtain a wide variety of credit overnight.
However, by patiently taking out credit and paying it back on time, your daughter will build up her credit history. By having a game plan, and following her budget, she will learn not to overcharge. Credit cards have high interest rates, and anything charged and paid back over time adds a lot of expense to the original purchase. (Avoid the minimum payment cycle).
Remember, to establish credit, follow these steps: