Daughter wants credit independence from Dad
By Erica Sandberg
October 4, 2013
I have been paying my car loan along with my dad for almost one year. I still have almost $8,000 to go, but I have never been late. I'm on my dad's credit card and have been using it fine and pay on time, but it's not in my name. I want my own card now. What is the easiest card for me to get right now? And do I need my dad's permission? — Chelsea
When your father went in with you on a secured financing arrangement and made you an authorized user on his credit card, he took a big chance. Such serious decisions could have had poor outcomes. Instead, you seem to have been treating both obligations responsibly, and because of that, you might be able to get a credit card without his signature. And, no — you won't need Dad's permission. But you will need a lender's approval.
Before pursuing a credit account in your own name, first know where you stand by checking your credit reports and credit scores. You can get a report for free from each of the three credit bureaus (TransUnion, Equifax and Experian) once a year at AnnualCreditReport.com. Your FICO scores (the credit scores most commonly used by lenders) will cost about $20 each at MyFico.com. Your scores, which range from 300 (the worst) to 850 (the best) will show you which type of credit card to shoot for. If your scores aren't so hot, search for a card designed for those with fair or poor credit. Pick a card and apply.
There could be some potential roadblocks to achieving your goal of independence, though. The first is that you have to be over the age of 21. Because of the CARD Act of 2009, young adults under the age of 21 will either have to get someone to co-sign on the card, or provide the issuer with evidence of financial security. Proof of your own income is required.
If you're older than 21, you will have more freedom in applying for a card without another person's assistance, but the creditor will still want to be sure that you'll be a good customer. That means they'll pull your credit report to see how you've been doing and review your application to ensure that your income can withstand the line of credit.
You've got a couple things in your favor: a detailed history of the car loan and a credit card that you're authorized to use listed on your credit report. That you (or your dad — credit reports don't show which person on the account sent the money) have been paying on time is in black and white, and will certainly look positive to banks and other lenders.
A credit card issuer will also check your credit scores to determine qualification. These scores are essentially shorthand for what's on your file, and help lenders gauge risk. All the financial information on your credit report is used to compile such scores, but some data is weighed heavier than others. Payment history is the most important factor — and you have that covered!
However, the balance that remains on your vehicle may be held against you. If a lender thinks you wouldn't be able to handle an additional line of credit plus the car loan you already have, you may get turned down.
The balance on your dad's credit card will come into play as well. You don't mention the credit limit that your dad's card has, but if the current balance is near or close to that figure, your score will decrease and affect your ability to get a new account. To maximize your credit scores, you'll need to keep the balance on the card below 30 percent of the credit limit.
If you get a card of your own, it's possible that you'll have to start small, with a short credit line. That's OK, since you'll be restricted to charging a sum that's within your means — and it's less likely you'll have to ask Dad for a bailout.
Got a question for Erica? Send her an email.