I want to add my daughter as au to one of my cc's but I want it to help her build credit; How does this work? will she have to make a purchase with the card and sign the receipt for anything to go on her report; or when I make purchases, is her report effected as well as mine? Someone please explain!
Being added as an AU can help IF the account is older than any of hers, IF the payment history is long and clean, IF the utilization is very low, and IF it will report to the CRA's. Not all cards will do this. You need to ask the company first. She will inherit the entire history of this account. One caveat however; if this account starts to go south her credit will be affected as well. Keep that in mind.
She never has to do anything as an AU. She gets the benefits no matter who uses the account.
From a BK years ago to:
7/09 TU-742 EQ- 779
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802
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We have each of our grown daughters on one of our cards. It gives them some nice age for their histories and average age of accounts.
We are careful not to carry balances on those cards. It's also nice if I want one of the girls to pick something up for me. They can use our card and we don't have to pay them back. Plus, I get the cash rewards.
And, no, they don't have to use the card. Just be sure you check with your credit card company to make sure they report cards for AUs.
The AU account will become part of your daughters credit history. It will be factored into her scores.
If you run a Fico simulator on her credit, you will get an idea of how much it will help. Run it once with only her accounts, then run it with her accounts and the AU account.
Also whatever the 2 of you do with that account in the future will be part of each of your credit histories. There is no seperation on who charged what or who paid.
I assume you trust your daughter because you are giving your daughter the legal right to charge to that account, but only you are legally responsible to pay it.
1. AU accounts don't actually help the AU's credit, except that it assists with FICO
2. If a young person has no credit, then they don't have a FICO score. An AU account can help to establish a CR TL that allows a FICO to be generated.
3. The AU account is calculated (for FICO) in account "oldest" "average age" "total of credit limits" and thus "credit utilization."
Traditionally, an AU account demonstrated to potential creditors that the individual had exposure to credit through the authorized use of a family members account. This used to represent the "training" and "education" of the young person in the proper care and use of credit. And for this, creditors (and FICO) used this as a second tier consideration for the AU's credit.
Fast forward...as people began to understand how the AU accounts were being viewed by lenders...people began leveraging that in ways not originally intended by creditors and credit risk analysis companies (FICO, etc.). This is why FICO and others have considered discontinuing the practice of using AU's in score and credit consideration....
However, due to the out cry of those who do legitimately use AU's for the training, education and introduction of credit to family members, FICO reconsidered and determined they would continue to use AU but are going to devise methods to better determine "legitimate" AU accounts and those that are likely to be "shadow trade lines" used to inflate FICO and water down derogs.