Editorial Policy

Ending authorized user arrangement? Go slowly

Eva Norlyk Smith Ph.D.

August 12, 2013

QHi Eva,

Even though I've never had a credit card of my own before, my credit score is good! It's 720, and it's probably because I've been paying my student loans and my mom has had me on her card for years. I'm looking to get my own credit card, and I want to know what the timing should be to get removed from my mom's card. Should I take myself off as soon as I get accepted for my card? Or after charging for a few months? I don't want to hurt my credit. My mom isn't trying to kick me off or anything, but I won't feel like a real adult until I've separated myself. — Chuck

ADear Chuck,

You definitely have some great things going for you in terms of credit. Getting to a score of 720 from a combination of just a student loan and your mom's (and your) good credit card habits is something to celebrate.Ask Eva

Yet that high credit score could be built on sand, because you do have what is known as a “thin” credit file. Apart from the credit habits associated with your mom's credit card, you have no other forms of revolving credit. If you were to remove yourself from your mom's credit too soon after getting your own credit card, you could indeed see your credit score fall.

So how should you proceed? The best route markers are the components of FICO scores (the type of credit scoring model most frequently used by lenders). Let's take a look at how dropping off your mom's card would affect each component — and how you can counteract those effects.

Payment history
This component makes up 35 percent of your FICO score, and it's a measure of how timely and consistently you pay your debt obligations, including revolving loans like credit card balances and installment loans like student loans, mortgages or car loans.

How it will be affected: Once you remove yourself from your mom's credit card, new information about that card will stop showing up on your credit report. As for how the card's payment history before that point will be reported, that depends on the credit bureau. TransUnion deletes the entire account (including its history) from your report. So only your student loans would remain on your credit report, leaving you with an even thinner history.

With Equifax and Experian on the other hand, accounts paid as agreed generally stay on your report for up to 10 years (meaning the card's healthy past would still cast a warm glow over your report).

What to do: Apply for one or two other credit cards, use them regularly and pay on time to build your own payment history. To be safe, use them for at least a year before removing yourself from your mom's credit card. That way it won't matter much if your mom's account disappears from your TransUnion report — you'll have already established a payment history of your own.

Credit utilization
Also known as the debt-to-credit ratio, this is the second-highest component of FICO scores, constituting 30 percent of your score. It refers to the amount of debt you have compared to the amount of credit you have available. The lower it is the better, because it shows that you can keep a line of credit without feeling the urge to squeeze every penny you can out of it. Because your credit score is high, it means your mom has kept her credit balances low. However, because credit utilization doesn't come into play on installment loans, your student loan does not affect this part of credit scores.

How it will be affected: With your mom's card out of the equation, you'll likely find yourself with a smaller credit limit to work with. Not only will you no longer have her credit limit available to you, you'll probably be offered a relatively low limit on your first card. Credit utilization ideally should be below 30 percent, preferably lower. So, on a card with a $1,000 credit limit, even a $500 balance would constitute 50 percent credit utilization.

What to do: Always keep your balances under 30 percent of your credit limit. After a year of good behavior, you can always ask your bank for a credit limit increase.

New credit and credit mix
New credit and credit mix each constitute 10 percent of your FICO score. New credit is a measure of how much recent credit you have taken out (a lot of new credit accounts are taken as a sign of potential financial duress). Credit mix takes into account how much credit variety you have. Generally, the more types of credit you have, the better, as long as that variety is combined with a positive payment history. It shows you can manage different kinds of credit responsibly. Right now, you have an installment loan (the student loan) and a revolving line of credit (your mom's card). So you'll need to be careful about doing away with the latter.

How they will be affected: Because you have a rather thin credit history, your score might get dinged if you apply for a couple new cards in rapid succession. Yet that damage will be short lived, assuming you use those cards well. Plus, taking out one or two more credit cards will improve your credit mix, which would boost your score.

What to do: Keeping your mom's credit card on your credit report will help counteract the effect of the new credit applications.  If you plan to apply for more than one card, space out your applications by a few months, so that you don't appear desperate for credit.

Down the road, another type of loan (such as a car loan or mortgage) will help you improve your credit mix.

Length of credit history
This component makes up 15 percent of your FICO score, and as the name implies, it's a measure of how long you have been using credit. For an excellent FICO score, you need to demonstrate you and credit have had a long, healthy history.

How it will be affected: Your mom's card will still be staying on two of your consumer credit reports for the next decade. But it eventually will fall off all your reports, significantly shortening the length of your credit history if you don't start establishing roots with other cards.

What to do: Take out at least one new card as soon as possible and allow it to build up a solid credit history for you over time. Even though the authorized user account will continue doing good for your reports and scores for a while, when it does fall off your reports, you'll have already built strong foundations of your own.

So, Chuck, I'm going to encourage you to accept your mom's generosity and remain on her card a little longer (although you can stop using her card the second you have your own). Once you've been using your own cards for about a year, call the bank and asked to be removed as an authorized user. Your mother seems to have taught you well, and I have complete confidence that her help won't be for naught.

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