The great thing about making someone, such as a child, an authorized user on your credit card is that they can charge things they need on the card. It allows them to take advantage of your good credit, while building good credit of their own. This, however, might backfire if you — yes, you — are the one who makes some kind of credit mistake.
The mistake may trickle down onto your child’s credit report, and he may get dinged for your mistake. Parents get blamed enough for their faults as it is, so are there ways to fix this problem? You bet.
Start with the credit bureaus
First, your child doesn’t own your credit card account. He’s just been given permission to use it. Therefore, your mistake should not affect his credit. The credit card bureaus don’t know the mistake wasn’t his, however, so they need to be informed. They should remove the negative account from his credit report. Alas, that may or may not happen. Fortunately, there is a well-established dispute process.
Your child can file a dispute directly with the credit bureau(s), including Equifax, Experian and TransUnion. The credit bureaus are required to contact the “furnishing party” – the entity that dinged his credit – to check on the item’s accuracy. The process is mandated to take less than 45 days, and if there’s no response from the furnisher, the item gets deleted. Alternatively, he can file a dispute directly with the furnisher, who is in turn required to tell the credit bureaus the item is in dispute. Even better, the furnisher has to investigate the claim and if it was an error, the correction had to be made to the credit bureaus. You may now submit documentation to support the claim, which is a recent change coming out of the Consumer Financial Protection Bureau.
Steps to take while awaiting resolution
But let’s take this one step further. Let’s assume some disaster has occurred, you are getting the runaround from the credit bureaus or the furnisher, you have to file a complaint with the FTC, and it’s all taking much longer than it should to resolve. You can still get going on fixing your child’s credit.
When it comes to credit approval, everything is dependent on your credit score. Getting your credit score is the first stop. Your credit score consists of five elements: payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). Anything your child can do to attack these areas will help.
So, if your child has other accounts open, he should re-double his efforts to get those cards paid on time. Furthermore, because debt utilization rate is part of the “amount owed” component, he must try and pay those cards in full.
Additional tactics to build credit
Meanwhile, your child may be able to initiate a few other tricks. Utility companies sometimes report on-time payments to credit bureaus. See if that’s the case. If so, get on board with that program. The same thing goes for rent. There are new services like WilliamPaid, which not only automate your rent payments, but will report them to Experian RentBureau.
Another tactic is to use a secured credit card. In this case, you deposit a certain amount of money with the credit card company that it will use to pay off anything you charge if you default. So now, without going into debt, you have a secured credit card that will report your card status to the credit bureaus.
Father and son image via Shutterstock