Authorized User or Own Credit Card

[Anonymous]

So recently I might've gotten a little crazy with building my credit up. I'm 25 and have only had anything on my credit report for 3 years now. I wish I would've started earlier and had more information, but I just didn't know any better. Well my little sister is 18 and just graduated high school yesterday. I'm trying to get her a head start like I wish I would've had. I'm also talking with my mom to help her out, but she doesn't know much about how credit works either. So basically I'm wondering, would it be better for my 18 year old sister to be added as an AU on my mom's account or to try to get her own secured card of some sort? Or is there another option for her? What would be best for her at this point? Thanks for the help. 

[rmduhon]

An AU account can give good initial scores to jump from. But if the card that will be used has any derogatory information such as lates or extremely high utilization then it would be best to start fresh. Is she a member of a credit union or have a bank account?

[RobertEG]

Adding an AU is, providing it adds positive scoring value, beneficial if a prospective creditor does not do a manual review in their evaluation process.

However, if the prospective creditor does a manual review and sees the presence of an AU account, that informs them that the score they are viewing is not based only on the named consumer's credit history.  Thus, they may discount the value of the score in their decision making.

In rebuilding, many prospective creditors will not invest in a more detailed manual review, and will rely primarily on a credit score.

Thus, adding an AU can be a great rebuilding tool.

However, as the consumer progresses and begins to apply for higher or better terms of credit, the chances of a manual review increase, and it may be beneficial to remove any AU account, even if they are providing a positive score increase.

[Anonymous]

I'm a bit leery of this idea since you said that your Mom doesn't really know how credit works. If playing the AU card, you want to make very certain it's with someone that is knowledgeable and aware about their credit.

I'm personally not into the AU thing. It's very possible to build your own credit. Even by starting with secured credit cards and secured loans if need be.

[Anonymous]

To answer a couple questions.

1. Yes my sister has had a bank account since she's been born and has an okay amount of money right now in her college fund. Nothing that'll make your jaw drop, but a decent amount. I'm thinking this should be enough for the bank to give her a card.

2. Although my mom doesn't know the inner workings of credit, she doesn't have any lates or collections or actually probably hasn't even had an inquiry in about 5 years. She has 1 true credit card and 2 store cards. No mortgage or auto loan in the last 10 years either.

So my thought is being an AU will benefit her, but not as much as getting her own card. Is my thinking accurate?

[Anonymous]

The answer is that it might be a great idea, as a solution to help your sister get started (first 24 months, say).

We cannot know how great of an idea it is yet till we know more about the three cards.  Of those three, is there one that is:

(1)  Is at least 6 years old?  (10 years or more would be better)

(2)  Is a card your mom could keep at either $0 or an extremely low utilization?

(3)  Has no derogs of any kind?  Not even one late a long time ago?

If so, then adding your sister to that would be a great decision.

The answers to these questions can be found by pulling the credit reports for your mom at all three bureaus.  Regardless of what you all decide, this is something you should help your mom do.

[mitchblue]

Does your mom understand that if her daughter is late on a payment or other bads it effect's her? I'll go on a whim and say your sister is trustworthy but I've seen Au's mess up before and the effect it has..

[rmduhon]

@mitchblue That can be avoided by not letting the daughter use the card. That's what I'm doing for my nephew

[mitchblue]

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@rmduhon wrote:
@mitchblue That can be avoided by not letting the daughter use the card. That's what I'm doing for my nephew

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Ya, good point. I forgot about that strategy.