Category: Money

As you teach your kids about money, an important concept is how to use credit responsibly. Adding your children as authorized users on your credit card is one way to help teach sound credit management skills, it might give their credit scores a head start.

Read on to learn the best time to add your child as an authorized user on your credit card account. You’ll also discover why this credit-building strategy can be so effective.

An authorized user is someone you add to a credit card account that has been issued in your name. You give the authorized user your permission to make charges on your account, but that person isn’t responsible for the debt. The liability lies with you, the primary cardholder.

You can typically request to add an authorized user online or by calling your credit card issuer.

If your account is open in good standing, the bank will issue another credit card with the authorized user’s name on it. It’s up to you whether you actually turn the card over to your authorized user to make charges or tuck it away for safekeeping.

Adding an authorized user to a credit card could potentially affect your credit the credit of the person you connect to your account. The actual impact will vary based on how the credit card is managed.

When you add your child or anyone else to your existing credit card, it may help that person build credit.

“With good payment behavior responsible use, adding an authorized user may have a positive impact on the authorized user’s credit score,” says Monica Weaver, head of branded card partnerships experiences at Capital One.

For a credit card to build positive credit history, look for these factors:

Why is payment history so important? It’s the No. 1 factor influencing your credit score – followed by how much credit you use. Length of credit history isn’t as influential, but it’s still helpful.
“If you are responsible with (your credit card), it’s very helpful to give (your child’s credit) a jump-start when they are in a position to begin building credit on their own,” says Shanté Nicole Harris, financial educator credit consultant with Financial Common Cents.

It’s worth noting that most, but not all, card issuers report authorized user accounts to the three credit reporting agencies: Equifax, TransUnion Experian. If a card issuer doesn’t report the account to credit bureaus, it won’t help your child’s scores at all.

There could be downsides to adding your child as an authorized user: You are responsible for a potentially larger bill, with a larger bill comes a higher credit utilization ratio.

The action of adding your child to your existing credit card account won’t have any impact on your credit score. Nothing on your credit report indicates whether your credit card is used by authorized users or just the primary account holder.

Yet your credit could be impacted if your child makes charges on the account. You’ll be responsible for paying those charges – though of course you can make an agreement with your child to pay them. You should plan to pay your full credit card balance each month, including your authorized user’s charges. But if your authorized user runs up your bill, you might not be able to pay the full amount need to start carrying a balance. That will drag down your credit score. Your credit utilization ratio will go up, too, since you your kids are charging more in total. This also dings your credit score.

While adding your children as authorized users giving them access to make charges can provide a training-wheels credit experience, you don’t have to actually allow them to make charges. Whether they use the card or not, your positive (negative) account history will be reflected on their credit.

Some parents opt to add a child as an authorized user for credit-building reasons alone. In that case, the parent holds on to the physical card, not the child.

If you do give your kids a card to use on your account, it’s a good idea to set expectations on how much they can charge to the account how they plan to pay it off. Some card issuers allow you to set spending limits on authorized user cards.

Remember, when you add an authorized user, you agree to be held responsible for all of the charges that person makes on your account. You can’t dispute a charge if your authorized user makes purchases you didn’t approve.

There’s no such thing as the perfect age to become an authorized user. Ultimately, it boils down to responsibility whether your child needs access to credit soon.

When you’re deciding the best age to add your child as an authorized user to your credit card, here are a few questions to consider:

Generally, high school is a good age. It’s a time when your kids may need to use a credit card for purchases, they should be mature enough to pick up lessons in credit. Having credit history could be handy once they hit college age get their own student credit cards.

Certain credit card issuers have restrictions when it comes to the age of authorized users. American Express, for example, requires children to be 13 years old before you can add them as authorized users to your credit card. Other card issuers, like Capital One, leave the age of authorized users up to the primary cardholder’s discretion.

Boosting your children’s credit history isn’t the only potential benefit to adding them as authorized users. You could earn more rewards make accessing money easier for your family.

Rewards. If you add an authorized user to a rewards card give that person charging privileges, those purchases could help you rack up a higher rewards balance. Weaver says, “Beneficially, the primary account holder earns rewards (if on a rewards card) for their authorized user’s purchases.”

Simplified household finances. A shared credit card, where you can see all transactions in one billing statement, could be easier than tracking expenses in a separate bank account or giving your child an allowance that isn’t tracked. Seeing your child’s charges gives you an opportunity to talk about budgeting how he or she spends money.

Peace of mind. Knowing that your child has access to funds in an emergency can set you at ease as a parent. Just be sure to discuss any spending guidelines together in advance. You should also feel confident that your child is trustworthy will follow the rules.

Adding your kids as authorized users can help them, but it’s just one stop on their journey to establishing good credit. It’s not the end goal.

Although a positive authorized user account might help your child’s credit scores, that may not be enough when it’s time to apply for certain loans. “When you don’t have your own credit established,” Harris says, “it can still negatively affect you in the lender’s eyes.”

“Don’t just ride on the coattails of someone who has good credit,” says Harris. Kids need to start working toward their own.

Some parents opt to remove their children as authorized users once they’ve established some credit of their own. But keep in mind, removing authorized users may lower their credit scores because they’ll no longer have your account payment history credit age on their report. As an alternative, you might have your kids stop making charges but keep them on the account as authorized users for credit-building purposes.

Be sure you trust your child if you decide to go this route. If you worry your child might continue making purchases without permission, it’s probably best to call your card issuer cut the cord.

If you are hoping to quickly boost your credit score, a program from credit reporting agency Experian might help.

Experian Boost could raise your credit score by adding your on-time utility, streaming service rent payments to your credit file.

“Experian Boost is good for people with little to no credit history as well as established borrowers looking to increase their credit scores,” says Kevin Everhart, chief growth officer, direct to consumer at Experian.

Programs such as Experian Boost can deliver what they promise, adds John Ulzheimer, a credit expert formerly of FICO the credit bureau Equifax.

“The newly added data can lead to higher scores,” he says. “That has been well established.”

Experian Boost is a free program that could raise your credit score by giving you credit for your regular rent, utility streaming service payments.

Since Experian Boost launched in 2019, 8.6 million consumers have used the program to improve their FICO scores, Everhart says. The average increase has been 13 points for those who saw a boost.

Experian analysis also shows that users whose scores increase will continue to notice improvement by an additional nine points, on average, over the next 12 months, Everhart says.

Experian Boost applies to multiple FICO models VantageScore models, according to Experian.

Furthermore, the program has allowed more than 10,000 users without enough information for a FICO score to receive a score each month.

To use Experian Boost, go to the Experian Boost webpage provide some basic information about yourself to create a free account. You will then connect the credit card bank accounts you use to pay bills allow Experian to search for qualifying payments.

Experian looks at two years of payment history to find bills that are eligible for the program. You’ll need to have made at least three payments in the last six months, including at least one in the last three months, for a bill to qualify.

“Experian will continue to identify the eligible payments as long as the consumer stays enrolled in an Experian membership their accounts stay connected to Experian Boost,” Everhart says.

You will need to decide which payments to add to your Experian credit file verify the information. Your credit score will be calculated with the new information, any increase will show up in a few minutes.

The following types of bills qualify for Experian Boost:

Specifically, you can get credit for your timely payments to Netflix, Disney+, Hulu, HBO, AT&T, Spectrum Verizon.

If you rent, your on-time monthly payments can also help your credit score as long as you pay an eligible property management company or payment platform. Experian Boost supports payments from more than 1,500 U.S. property management companies platforms such as AppFolio, Buildium, Yardi Breeze Zillow Rental Manager.

“Experian also intends to add individual landlords smaller property management companies over time,” Everhart says.

Experian Boost is free. You simply create an account opt in to the program.

On the day you register, you can immediately access credit tools, including:

Experian says it uses “bank-level” secure sockets layer security encryption, a protocol for safeguarding sensitive information. The company also pledges to keep your information private.

“Data security has always been – always will be – our highest priority,” Everhart says. “As with all of our data, we’ve implemented the highest levels of security with Experian Boost.”

He adds that Experian requires read-only access to a customer’s bank account to identify payments. “Experian itself does not see nor retain any credentials in the process,” Everhart says.

Those most likely to benefit from Experian Boost include consumers with little to no credit information on their Experian credit reports, Ulzheimer says. Others who may benefit include “consumers who need just a modest improvement in their scores,” he says, to qualify for credit or better terms.

People with limited credit histories FICO scores below 620 have seen the biggest benefit from Experian Boost, Everhart says.

Among those who have benefited, subprime consumers have improved their FICO Score 8 by nearly 17 points on average, according to Experian. Those with thin credit files have seen a jump of nearly 20 points.

Other programs similar to Experian Boost can help you improve your credit score, such as eCredable Lift, which adds utility payments to your TransUnion credit report. However, that program costs $24.95 per year.

“I’m generally not a fan of the other fee-based services because the best options for building credit are free,” Ulzheimer says. “I don’t think getting into the habit of paying to build your credit report is a smart long-term solution.”

Instead, he recommends building your credit the old-fashioned way: opening accounts in your own name, “like we all had to do.”

If you’re facing a job loss, you could be worried about paying your bills. This may be especially true if you have credit card debt little to no emergency savings.

When you lack the income to pay credit card other bills tracked on your credit report, your credit score can suffer.

Luckily, you can prevent damage to your credit manage your payments when you’ve been suddenly forced out of work. You’ll need to get organized, pick up the phone likely make some sacrifices, but you can find help.

Here’s what to do if you’re concerned about paying your credit card bills you’re not sure when your next paycheck is coming.

After a layoff, you might receive a severance payment based on your length of employment how much you earned. A severance payment can act as a financial bridge from one job to another if your unemployment period is short.

Many employers choose to provide severance even though it’s not required. The number of employers offering severance packages to all employees that are let go rose to 64% in 2021 from 44% in 2019, according to a recent study conducted by talent mobility company Randstad RiseSmart.

If you get severance pay, use that money wisely in the weeks – possibly months – after you lose your job. You’ll likely need it to cover any monthly credit card loan payments you can’t defer.

Plus, job hunting isn’t simple. “To find a job as good as the one you had is harder than you think,” says Mike Sullivan, personal financial consultant with Take Charge America, a nonprofit credit counseling debt management agency based in Phoenix.

When you lose income, it can be frustrating to face the reality of cutting out enjoyable parts of your lifestyle. But there’s no better time to take an inventory of your expenses, says Robby Dunn, vice president of counseling at Parachute Credit Counseling of West Seneca, New York.

If you’ve cut unnecessary expenses from your budget, the best-case scenario is that you’d have enough money to make the minimum payments on your credit cards loans. This could mean carrying credit card debt from month to month with interest, but that is better than missing payments.

If you still can’t make all of your debt payments, you will need to prioritize your secured debt payments over unsecured ones. Secured debts, such as auto loans mortgages, are different from unsecured debt, such as credit cards, because a lender could seize your collateral if you don’t make timely payments.

“You always have to view secured debt as the No. 1 priority because if you don’t make a mortgage payment, foreclosure proceedings can begin within months,” Dunn says. “It’s more damaging to your credit report credit score when you miss mortgage payments.”

Also, if you’re a couple of months behind on your auto payments, “The vehicle can be repossessed,” Dunn says. “To get a vehicle out of repossession can cost hundreds or thousands of dollars.”

That doesn’t mean it’s a good idea to miss a credit card payment, though. If you miss even one credit card payment, your credit score could drop by up to 80 points, the blemish could stay on your credit report for seven years, Dunn says.

Adds Sullivan: “Credit cards are certainly the lowest priority when times are dire. They can hurt your credit, but the cost is less than losing a home or vehicle.”

Consumers must be proactive contact their card issuers by phone, website or app. “It’s best to address the situation head-on, Dunn says. “It’s only going to make it worse if you don’t answer the phone (and) don’t tell creditors you lost your job – you have a hardship. They’re not going to know.”

Consumers “need to view themselves as their own advocate, contact their creditors really state their hardship, their intentions to not fall too far behind, not damage their credit,” Dunn says.

Card issuers may not publicize them, but most have hardship programs to get you through tough financial times. Hardship plans can include provisions that allow interest waivers, lower monthly payments or even deferred payments.

You might have to negotiate a bit with customer service, but issuers are prepared to offer relief. Discover, for example, may provide help with fees late payments, Citi cardholders could be eligible for forbearance.

Forbearance programs give temporary relief to cardholders could include reduced interest rates, eliminated fees, postponed payments decreased minimum monthly payments.

The Consumer Financial Protection Bureau suggests getting any agreements with lenders in writing routinely checking your credit reports to make sure they are accurate.

And if you can avoid using these types of programs – or the longer you can put it off – the better off you’ll be.

“Consumers should remember that all these concessions will end, credit card balances will again be due,” Sullivan says. “It is wise to continue making payments if at all possible so as not to accumulate a large debt.”

Hardship plans have short- long-term consequences. They can provide immediate relief but hurt your credit, unless arrangements have been made to prevent it, as with deferred payments due to a layoff.

Damage can occur if your credit report shows your debt is “no longer being paid as agreed,” Sullivan says.

A hardship plan can have long-term effects on your credit report, credit score credit access. “If you call the credit card company say you’re having trouble making the payments, they are likely to take steps then to restrict your credit,” Sullivan says.

The credit card company cuts your credit limit to reduce its risk of losses.

But lowering your limit can increase your credit utilization ratio, or the amount of credit you’re using compared with your credit limit. If your credit utilization ratio is more than about 30%, your credit score may take a hit.

But “if you can’t make payments, you don’t have a lot of choice than to ask for relief,” Sullivan says.

Credit utilization can also be affected if you consolidate debt with a balance transfer credit card or personal loan. “It has a real impact on your credit the amount of credit you can have,” Sullivan says.

When you’ve lost income need to pay credit card bills, some options are better than others. You may want to look at home equity lines of credit, balance transfer credit cards, 401(k) loans or IRA withdrawals.

Here is more about each of these options:

Home equity line of credit. As long as you can manage the payments, a home equity loan may be your best choice for paying down credit card debt. Interest rates are typically lower than rates for personal loans or credit cards.

Balance transfer credit cards. If your credit score is strong, you might qualify for balance transfer credit cards that can buy you time to pay down balances without interest. But watch out for balance transfer fees, have a plan to pay off the debt before the regular interest rate kicks in.

“It could be just a Band-Aid on the wound as far as temporarily delaying the inevitable, you may not be able to make more than a minimum payment on the debt,” Dunn says. “But if you need to get by for three to six months, it’s not a terrible way to stay current.”

Retirement funds. This option carries the most risk because you face steep penalties for early IRA or 401(k) withdrawals. This is a very expensive way to borrow money, you could lose your retirement income, Sullivan says.

“It’s not something people should do lightly – think long hard before taking from your retirement fund.”

If you can’t keep up with your bills need help with budgeting, reviewing debts expenses, negotiating with creditors, you may want to use a credit counselor.

A National Foundation for Credit Counseling-certified counselor can even help you develop an emergency budget if you’ve suddenly lost income because of a job loss. During a financial counseling session, “We sit down with a client do a thorough review of their budget, income expenses on a monthly basis review their credit report,” Dunn says.

A counselor may recommend a debt management plan, or DMP, which rolls several bills into one monthly payment cuts your interest rate as you pay off debt over three to five years. A DMP can ensure the payments you make keep your accounts current protect your credit rating.

Dealing with debt can be a stressful confusing process, especially if you’re struggling to pay it down. If you end up with a bill that’s past due – or worse, in collections – you might be wondering about the best way to handle it.

Two terms you might have seen are having the debt “settled in full” versus “paid in full.” “Both options will close the account with a balance of $0 owed,” says Colton Castleman, a retirement counselor at Strong Foundation Retirement Counselors in North Carolina. “But they both have different effects on your credit score.”

Find out below the difference between having a settlement on your credit report compared with a debt that has been paid in full learn which is better for your finances long term.

When you make payments on your credit accounts, or fail to do so, the creditor will report that activity to the credit bureaus. The bureaus will then update your credit report to reflect the most recent status of your accounts.

If you have an outstanding debt, one option is to pay off the full amount so your credit report no longer shows it as being due. This is an option even if it’s late or in collections. If you choose to pay the debt off, your credit report will note that this account was paid in full.

What it means. Paid in full means the entire principal any applicable interest is paid back. At this point, you are no longer obligated to make payments.

How it affects your credit. When it comes to your credit score, having a debt that’s paid in full is your best option. “Paid in full will have a positive effect on your credit score, even more so if all payments were made on time,” Castleman said. That’s because out of all the factors that are used to calculate your credit score, payment history is the most heavily weighted at 35% of the total score. In this case, your account would be considered paid in full in good standing.

If you don’t have the means to pay off a debt in full, another option is to pursue debt settlement. If you do go through the process of a settlement complete your agreed-upon payments, your account will be considered settled in full – or sometimes “paid-settled” – by your creditor the credit bureaus. It will be noted as such on your report.

What it means. “Settled in full” is code for a debt that has been paid for less than the entire balance, says Andrew Latham, a certified financial planner director of content at SuperMoney.com. “In other words, it means you did not pay your debts in full.”

Debt settlement involves working out an agreement between you your creditor or a debt collector to pay less than you currently owe but still have the debt considered satisfied. Usually, creditors only agree to debt settlements if you’re significantly behind on payments it’s unlikely they will be repaid the full amount. You can negotiate a debt settlement on your own or hire a company to negotiate on your behalf. Your credit reports will show the outstanding debt as settled in full once it’s repaid.

How it affects your credit. According to Latham, a “settled in full” status on your credit report is preferable to “unpaid” or “in default,” but it’s not great. Settling an account rather than paying it in full on time signals that you’re a risky borrower, which will be reflected in your credit score. Additionally, working with a debt settlement company often means halting payments to your creditor in order to gain negotiation leverage. This can damage your credit leading up to the settlement because you end up with a history of missed payments over many months.

Because so many different things affect your credit score, there’s no way to know exactly how much your score will go down if you have a “settled” status on your report. It will certainly reduce it, though. The good news is that while a settled debt will remain on your credit report for seven years, its impact on your credit score will decrease over time.

Paying off a debt on time in full is the best option. “It’s usually better to pay in full if you can afford it,” Latham says. Having a loan paid in full in your credit history helps boost your credit score. Plus, if you didn’t miss any payments, your account is considered in good standing, which stays on your report longer than delinquencies – up to 10 years instead of seven.

Of course, life happens, you may not always stay current on your payments. Maybe you experienced a medical emergency or job loss had to rely on credit cards or loans to get by. Perhaps you missed some of your payments along the way. Even if you’ve fallen behind, you’re still better off paying the debt in full.

“In that situation, you will first want to talk to the lender see if you can renegotiate the terms of the loan,” Castleman says. For instance, you may be able to work out a modified repayment plan that extends your loan term lowers the monthly payment. “You can also speak to them about forbearance to postpone or reduce the payments for a period of time,” he adds.

However, if these options aren’t possible, debt settlement may actually be your best course of action. Having a debt settled in full is better than continuing to struggle missing more payments, harming your credit score even further.

Another benefit to settling your debt is reducing the total amount of outstanding debt you still owe. Lenders want to see that you aren’t overly reliant on borrowed funds, so maintaining a low credit utilization ratio – the amount you owe compared with the total amount of credit extended to you – will help boost your score. In fact, “amounts owed” is the second-most heavily weighted factor in your credit score calculation, making up 30% of your score. By paying down one of your debts, even if it’s through a settlement, you lower your credit utilization.

Consider debt settlement if one of these warning signs from Latham applies to you:

In some cases, it may be possible to have your creditor report a settled debt as paid in full. This requires some negotiation on your part, the creditor has no obligation to do so. However, if your debt is reported as paid in full instead of settled in full, you can avoid having that negative mark on your credit report subsequent hit to your credit score. If your creditor agrees, be sure to get it in writing, along with the date the account will be reported to the credit bureaus as paid in full.