Authorized user

[Anonymous]

I am trying to rebuild my credit and have a question regarding being an authorized user. My parents put me as an authorized user on one of their credit cards. It has perfect payments and is being reported on my credit report for 6 years and has a $4800 credit limit. I only have one other credit card that I just opened 1 month ago for a $200 credit limit. The only problem I am seeing with the authorized user account is that my parents have a utilization rate of about 76% on this card. I know this is not good but I'm trying to figure out if the good on the account outweigh the bad or if it's the opposite. My credit score jumped about 50 points once it was added but the other credit card I opened was reported at the same time along with some collection account removals. Any inputs as to whether this account will help or hurt?

[Anonymous]

You mention that the AU card has been being reported on your profile for six years.  Do you mean that your parent's card has a total age of six years old (and it was possibly added to your profile very recently) or do you mean that it was added to your profile six years ago?

A few questions that will help us help you:

    What is the age of your oldest clean account (not counting the AU card)?  I think the answer may be "1-2 months."

    What is the age of the AU card?

    When was the AU card added to your profile?

    You mentioned that some collections have recently fallen off your profile.  Is your profile now completely clean?  If not, what are your other derogs and when might they fall off?

    You mentioned you have exactly one card in your own name and this has a $200 credit limit.  Are you financially able to keep that one card at a very low reporting amount?  (You can use it a lot, but I just mean paying it down to maybe $10 or so a few days before the statement closes.  This probably would involve a couple payments a month.)

Finally, how comfortable would your parents be with lowering their utilization on that card you are AU for?  They might need to make a couple payments (as above) but would they be willing to lower the utilization to a much lower number?  Naturally it is their card, so if the answer is no, that's fine.

Knowing those answers would help us give you the best advice, but bottom line the AU will def help a lot if they can lower their utilization.  Otherwise it's a gray area, though my guess is that the high U hurts you less right now then your extremely short age.  A year from noiw, however, the high U will hurt you more than the help it gives you with your age.

[Anonymous]

Thank you for the response. The AU was just added this month but it reports back 6 years. I have 2 student loans that are 6 months old and the credit card that is 1 month old. I am now in a place where I can keep my credit card balance low and am making payments on the student loan on time. I do have a charge off from an old credit card and also a short sale that closed almost 3 years ago. We were also very behind on our mortgage so have a lot of late payments listed on that account.

[Anonymous]

Also, due to a recent job loss, I don't think my parents would be in a position to pay down the credit card very much so I don't see that changing any time soon.

[Anonymous]

OK.  Given that, you are certainly getting a number of nice things from the AU account:

   *  It is improving your "age of oldest account" by a large amount (from 6 months to six years).  That's very good.

   *  It is improving your average age of accounts (AAoA) from less than six months to almost 2 years.  In a couple months your AAoA will cross over to a full 2 years, which is also nice.

   *  It is giving you another long revolving account to a profile that was fairly thin and had only one credit card.

The bad thing is that it is keeping your CC Utilization very high (76%), when you could conceivably be keeping it very low (1-5%).

You report that it helped you out -- it gave you a score boost.  So keep it around.  I believe that you will discover that it will stop giving you the extra advantage in 8 months.  At that point your AAoA (without it) will become a full one year.  At that point the harm that the high CC utilization will be doing to you will exceed the benefit of the age (that's my guess).

My advice is to visit the Rebuilding forum and ask for help with your derogs.  They may be able to suggest techniques for getting those removed (if you are willing to be patient).  In the meantime, always pay your bills on time and get prepared for how to keep your one card at a very low utilization.  (The behavior won't help you now but it will help you a lot when you drop the AU in 7-8 months from now, as I suggest you do.) 

Finally I suggest that around that time you begin slowly adding a few more credit cards of your own to your profile.  Eventually you want at least three.  Four would be nice.  More is also ok but there is no scoring benefit from having them.

[Anonymous]

Thank you for the advice!

[takeshi74]

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@Anonymous wrote:
I know this is not good but I'm trying to figure out if the good on the account outweigh the bad or if it's the opposite.

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Consider the typical relative weights.  Revolving utilization falls under Amounts Owed.

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

Derogs aren't explictly covered above but they typically have a significant impact and tend to hold one down so defintely make sure you carefully research in the Rebuilding subforum and look into addressing yours. 

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@Anonymous wrote:
My credit score jumped about 50 points once it was added but the other credit card I opened was reported at the same time along with some collection account removals.

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It's difficult to assess the specific impact of each factor when there are multiple changes like this going on.  Also keep in mind that you don't have just one score.  While FICO 8 is the most commonly used model there are many FICO models used by creditors.  Typically for a given model you have a score with each of the 3 major CRA's.  Always consider both the model and the CRA when referring to the numbers and consider the relevance of a given model/CRA combo to a given creditor/product.  E.g. if a creditor uses TransUnion FICO 4 then your Experain FICO 8 won't be relevant to that creditor.