Build Credit: New Credit Lines vs. Authorized User

“It takes credit to build credit.”

This statement is all-too-common and a big reason for why many new borrowers turn to relatives for help. The method of becoming an authorized user to build credit is nothing new. In fact, many parents put their children down as authorized users on their own credit cards for this exact reason.

But, is the authorized user route really better than trying to build credit with new credit lines or is this all just a mirage?

Build Credit Credit Card

 

Credit Lines & Authorized Users, What’s the Difference?

A credit line is a fresh account — this could be a credit card, loan, line of credit or something else. An “authorized user” is merely someone placed on your account for the purpose of permitting them to access your credit line.

Why Add an Authorized User?

In most cases, this is done so multiple individuals can legally share a credit card. The example of a child accessing a parent’s funds is a common scenario. Many spouses will also do this, especially if only one has good credit.

Next, some people choose to add authorized users to their accounts to help the other person build their credit. This technique is debated heavily and for good reason, but it can be effective if the circumstances are right. Even so, it’s important that the primary account holder knows what they are getting into before they help.

Does an Authorized User Hurt Your Credit?

Co-signing for a home loan will potentially destroy the co-signers credit score. The impact is not so extensive when merely adding an authorized user to an account. But there is still a majority similarity between these two situations because the main borrower is extending trust to the authorized party.

The primary account holder does take on an inherent risk, but not in the same sense as with co-signing a loan. There will be no credit score damage for the act of adding an authorized user. The problem comes as a result of the authorized user being irresponsible — for example, the primary cardholder’s score will drop from late payments.

Can Authorized Users Build Credit This Way?

Many credit card issuers will report authorized users to the credit bureau. These entries will not show the same as they do for the primary borrower. Positive behavior will look good and influence a better credit score in the long run. Negative behavior will do the opposite and can drag down the authorized user’s credit score too.

Furthermore, it’s important to look at just how damaging an authorized user can be for the primary account holder. The best way to understand this is by looking at how a person’s FICO score is calculated in the first place. Here’s the breakdown for the vast majority of FICO scores that exist:

  • Payment history (35 percent)
  • Amounts owed (30 percent)
  • Length of credit history (15 percent)
  • New credit (10 percent)
  • Credit mix (10 percent)

For the primary borrower, the biggest drag here happens with the “amounts owed,” particularly when an authorized user maxes the card. The utilization rate will hit 100 percent for this card and will ultimately lift the total credit utilization rate between accounts. The primary holder will feel obliged to pay off the debt for the authorized user — and if they don’t, their credit score could decline as a result.

For the authorized user, there’s not much to complain about when considering the scoring metrics above. The biggest issue arises when the primary account holder needs to extract funds from the card. This action could make it seem that the authorized borrower has a really high utilization rate, even when it’s not their fault. The other variables, such as new credit and payment history, are not as important and are a non-factor when there’s no borrowing history.

The Better Option: Build Credit With a Credit Card

The faster way of obtaining a higher credit score is by establishing credit lines directly under yourself. Forget about the authorized user option and begin building your score with a basic credit card.

Believe It or Not, Secured Credit Cards Rock!

Here’s a good idea: Go for a secured credit card and plop down a $1,000-$3,000 collateral. Make sure it’s a card that offers conversion to unsecured after you prove that you are a responsible and trustable borrower.

Why? Because a higher credit limit helps and makes it less difficult to be active with your card without triggering a high utilization rate. This factor is very important because your debt-to-credit ratio weighs heavily on your FICO score. In fact, 30 percent of your credit score comes down to this single variable.

Conclusion

Building your credit can be difficult when you have no history to show a card issuer or lender. Having someone who will put you down as an authorized user can often help, but only if the creditor reports you as well. Be careful before getting into any of these situations — and if you want quicker results, set up your own credit lines instead.

Sources:

http://www.creditcards.com/credit-card-news/credit-utilization-fico-1270.php

www.nerdwallet.com/blog/credit-cards/credit-card-secured-unsecured-change-switch/

https://wallethub.com/edu/authorized-user/24717/

http://blog.ovationcredit.com/2017/03/understanding-your-credit/

7 Tips for a Debt-Free Summer Vacation

Taking a vacation with your family should be a pleasant thing – a rare treat in a schedule that is otherwise consumed by soccer practices, school recitals and working too many hours. Don’t let debt get in the way. It is possible to have a debt-free summer vacation and still have an amazing time with these seven tips.

Travel Debt-Free

 

1. Start Small

Keep in mind that small savings can add up to big amounts. Try tucking aside a couple dollars each week. Within a year’s time, you’ll have enough money saved to afford a family vacation (if not two!). The best part about this method is that you won’t feel it in your wallet or pocketbook and it can be fun for the whole family. Imagine a family piggy bank with a savings thermometer. Even small children can get involved with contributing change to the family vacation savings.

2. Research Your Destination

Next, spend some time researching your destination. You might find that some weeks or seasons are more expensive than others. Take New Orleans for example. Try booking a vacation during Mardi Gras or one of the city’s many jazz festivals and you are going to spend comparably more for a hotel room than if you plan your trip for an off-season month. Likewise, look at the location. You could save money by staying in a high-rise hotel on the city limits, but there won’t be much to do around you and you will have to pay for transportation into the city proper. Instead, pay a little more to book a hotel along a public transportation route or reserve a room in a small city located nearby. You will likely save money on the room rate as well as parking, and your transportation costs into the city proper may not be that different.

3. Look at Hotel Locations

You might also find that you can get the exact same experience for less at a nearby spot. Hotels are often cheaper on the outskirts of popular destinations than at the center, and sometimes the savings can be significant. Choosing a hotel 25 minutes away from your target destination could save you hundreds of dollars over the course of your vacation.

4. Compare Amenities

Comparing amenities is smart as well. Variables like whether breakfast is included, the price of parking, the proximity to local attractions, the necessity of taking public transportation instead of walking everywhere and the presence of a pool or other recreation can make a real impact on your wallet. Let’s say you are considering staying at the ABC Hotel and it costs $100 per night but includes breakfast and parking. It might cost more for the room than the XYZ Hotel that is charging $80 per night, but if XYZ charges $15 per person for breakfast and $20 per night for parking, ABC is a better deal.

5. Prioritize Your Vacation Goals

You may want to take the family paragliding, visit museums, see a popular show and eat out for every meal at nice restaurants, but wouldn’t you rather come home from your vacation and not have a credit card bill to face? The same way that your time is finite, your money is too. Create a budget for what you can afford to spend on your holiday and prioritize those activities the family wants to enjoy. The tradeoff could be something as simple as eating doughnuts for breakfast instead of a fancy brunch so that you can afford ice cream and bicycle rentals later.

6. Book in Advance

Booking your travel in advance is almost always cheaper than trying to get a last minute flight or hotel reservation, but did you know that activities can be as well? Purchase your lift tickets, museum passes and tours in advance. Sometimes you may have to agree to a schedule and book a specific time, but the savings can be considerable. Plus, when you book in advance, you pay for parts of your trip as you go, which can make affording the whole thing much easier because you can see the cost outlays.

7. Think Outside the Box

Finally, when it comes to planning a debt-free summer vacation, don’t be afraid to think outside the box. There are wonderful destinations just about everywhere, as long as you aren’t afraid to think differently – and these more unusual activities, destinations and appointments can be a good bit cheaper than their more popular counterparts. Major cities have lots to offer, but so do small towns. A family vacation to a major amusement park could be lots of fun, but you could also have a good time exploring a National Park, camping on the beach or on a road trip to silly attractions. It is the same with your hotel. You don’t need a four-star suite; you could be just as happy in a cheap hotel with adjoining rooms or an Airbnb. Try coming up with more novel ideas to spend your vacation time together and see the savings add up.

Keep in mind that the purpose of your family vacation is to do things together as a family. It doesn’t matter if you fly halfway across the world or drive to the next state. What matters most is that you are together outside the distractions of everyday life. The conversation, the laughter and the memories can be had for pennies on the dollar when you abandon the idea of a large-scale vacation and focus instead on how to make your family vacation one to remember.

Sources:

Dave Ramsey, “Debt-Free Vacation Planning Advice from Dave Fans.” [Accessed: https://www.daveramsey.com/blog/debt-free-vacation-planning-advice-from-dave-fans]

Dave Ramsey, “15 Insider Tips to Enjoy a Debt-Free Vacation.” [Accessed: https://www.daveramsey.com/blog/15-insider-tips-next-debt-free-vacation]

Living Well Spending Less, “How to Plan a Debt Free Vacation,” April 22, 2017. [Accessed: http://www.livingwellspendingless.com/2016/04/22/plan-debt-free-vacation/]

Penny Pinchin Mom, “How To Plan A Debt Free Vacation,” Penny Pinchin Mom, May 2, 2014. [Accessed: http://www.pennypinchinmom.com/plan-debt-free-vacation/

Why We Love Improving Credit
(And Why You Should, Too!)

Improving credit can give people such a great feeling. It comes as a relief because it lets you put money-related setbacks or mistakes in your past. At the same time, it offers an exciting new start for your financial life.

Love Improving Credit

In particular, improving credit can positively affect the following areas.

1. Credit Cards

With a more impressive credit, it’s easier to get credit card applications approved. Plus, your interest rates will be lower.

Also, in some cases, credit card companies will automatically raise your borrowing limits as your credit score goes up. And, if they don’t, you could always apply for higher limits. Even if you don’t spend any more money with your credit cards than you have in the past, a higher credit card limit will help you. That’s because it will lower your credit utilization ratio. That ratio measures how much you spend versus how much you could spend. A lower credit utilization number will mean an even higher credit score.

In addition, there are various credit card bonuses that people with good credit may be eligible for, including programs that provide rewards points or cash-back offers.

2. Loans

Reputable lenders are much more likely to authorize loans to people with solid credit reports. Therefore, you’ll surely be capable of securing larger loans and more favorable terms ― such as lower interest rates ― with a better credit score.

Equipped with that higher score, you could also try to renegotiate and refinance loans that you’ve already taken out, especially a mortgage if you have one. Maybe you’ll be able to eliminate certain fees or extend the length of a loan, which obviously would mean making smaller payments each time.

3. Rental Homes

Nowadays, it can be difficult to find a landlord who’ll let you rent an apartment or other type of housing if your credit is poor. Many landlords feel, rightly or wrongly, that tenants with bad credit are less likely to pay their rent on time.

This fact holds true for rented vacation homes as well. Whether you’re renting such a place for one time only or on a recurring basis, you very well might obtain lower rates and fees if the owner knows that you have good credit.

4. Security Deposits

When your credit report is healthy, you may not have to pay security deposits when you sign up with a new utilities company or buy a new smartphone. And, by not having to pay such deposits, you could save hundreds of dollars over time.

5. Getting a Job

If you’re applying for a new job, your prospective employer might ask to look at your credit report. You’d need to give your consent in writing before anyone could do so. And, if you have an excellent report to show off, it might make you look especially responsible and mature.

At this time, most employers don’t look at credit reports, but that situation could change. Moreover, if you’re applying to a company that does check out these reports, having better credit might give you an extra surge of confidence when you go in for your job interview.

6. Auto Insurance

Car insurance companies often calculate that people with higher credit scores file fewer claims. As a result, they frequently charge higher premiums to those with lower scores. Therefore, improving your credit can be a major advantage when you’re looking for an auto insurance policy.

 



We have a Credit Analyst Ready to Take Your Call Now.

  Free Credit Consultation

Take Advantage of this FREE offer.

 


Repairing or Improving Credit

With all of these benefits in mind, you might be wondering how to begin repairing or improving your credit. Well, a reputable credit repair company is a good place to start. The professionals will work with you to comb through your credit report and find errors that are negatively affecting your credit. For example, perhaps your record states that you forgot or were late with a certain debt payment, but you’re sure that you paid it on time. Your credit repair company will dispute on your behalf to hopefully get that removed. Not to mention, in the process of advocating for you, your credit repair representatives could offer you a wealth of financial advice on how to live a better credit life.

It’s all too easy to spiral downwards financially. As you’ve read, when you have bad credit, it’s harder to obtain favorable conditions from lenders, landlords, credit card companies and others, which means it becomes harder to pay back the money you already owe. Then, if you fail to make some of those payments, your credit score will drop even further, which can put extra monetary strains on you. The cycle is vicious.

Fortunately, the opposite is also true. When you boost your credit, you’ll accrue an array of benefits that will make it much simpler to live within your means and save for the future. As time passes, your economic outlook should look brighter and brighter. With an outstanding credit repair service at your side, you can finally break free from harmful spending patterns and take charge of your financial life. That sense of personal empowerment may be the best reward of improving credit.

Sources:

http://www.huffingtonpost.com/nextadvisorcom/6-surprising-ways-having-_b_6000364.html

http://finance.yahoo.com/news/6-biggest-ways-bad-credit-110012930.html

http://money.usnews.com/money/blogs/my-money/2012/02/21/6-benefits-and-rewards-of-having-awesome-credit

http://www.msn.com/en-gb/money/moneymatters/reap-the-benefits-of-an-excellent-credit-score/ar-AAdgJjH

https://www.thebalance.com/having-good-credit-score-960528