Ask the Experts: Is being on my father's account helping or hurting?
Hello, so my situation is that my father added me to his credit card when I went abroad, but I hardly used it. Upon returning, I gave it back to him and started my own credit card. He kept the card and continued to make purchases on it. I currently have two credit cards with a limit of about $3,000. I pay off my statements in full every cycle. When I asked my dad to cancel the card he got for me when I was younger he said that he is building my credit by paying the minimum due on the card. Is he hurting my credit or building it? I've been advised by my brother that the ratio of my debt to limit is good for my credit score. But I would like an expert's advice. Thanks. – Monica
Credit scoring is complicated. And because the actual formulas used by the agencies that provide credit scores are basically a secret, we really only understand the rules of credit scoring. We’re not able to accurately calculate what effect each action will take on your score, just the basics of what’s usually good or usually bad.
So yes, your brother is right, in that how much of your available credit is currently being used is a factor in your score. Remember that your credit score is essentially shorthand for potential lenders – it tells them whether or not lending you money is a good idea. So if the total credit currently available to you is $3,000, but you’ve already used $2,500 of that, then lending you money would seem less appealing.
That said, the general recommendation is to never use more than 50 percent of your available credit. It sounds like you aren’t really carrying a balance on your personal cards. It’s alright for your father to carry a balance as long as he’s staying current with his payments and the balance doesn’t creep too close to the card’s limit. If your father is making minimum payments specifically because he thinks carrying the balance is helping, then I’d suggest he increase his payments, finish off the debt, and save himself the interest charges. As we discussed recently, it isn’t necessary to carry a balance month-to-month to build your credit score. Just be sure to pay your bills on time.
The next step is for you to decide whether or not you want to stay on your father’s card. There are pros and cons for either option. Since length of credit history is a key factor in your score, and that’s your oldest account, your score will probably suffer a little if you close the account. On the other hand, if your father ever forgets to make a payment or maxes out the account, your score will also suffer. Having your credit history in any way tied to an account that you don’t directly control is always a little dangerous.
There's no right or wrong answer, but it's definitely something you should think about as you you continue to build your credit history. Good luck!