Q&A: Helping a son with horrible credit scores

Dear Liz: My 33-year-old son has horrible credit scores. If I added his name to my credit card, would it have a positive effect on his score without any negative ramifications to mine? Could any of his creditors come after me?

Answer: Adding someone to your credit card as an authorized user can have a positive effect on their credit scores without negatively affecting your own or obligating you to pay their other debts. You would be responsible for any debt your authorized user incurred on the card.

In your son’s case, though, being added as an authorized user probably won’t help much.

When someone has fallen behind on their bills, the effect on their scores depends on three main factors: recency (how recently did a late payment occur?), severity (how far behind are they — 30 days, 60 days, 90 days or more?) and frequency (how many accounts have late payments?).

One skipped payment can knock 100 points or more off good scores but won’t result in “horrible” credit. Truly bad credit typically requires someone to be well behind on a number of accounts in the recent past. The fact that you’re worried about his creditors indicates that he may not have resolved his financial problems enough to start rebuilding his credit.

What he should do now depends on his circumstances.

If he still has a job, he may be able to arrange a payment plan or settle debts with collectors. If his income has dropped or he’s otherwise unable to pay, he may need to consider bankruptcy.

Once his past debts are resolved — either paid, settled or legally erased — he can take steps to improve his credit, one of which could include being added to your card. A credit builder loan, offered by many credit unions, also could help, as could a secured credit card, which requires a deposit.

It’s crucial that he be able to make all his payments on time, however. If he falls behind again, he’ll offset any progress that’s been made.

Tuesday’s need-to-know money news

Today’s top story: Credit cards that help authorized users build credit. Also in the news: Taking control with advance medical directives, why you don’t need 20% down to buy a home, and why wealthy college students are getting more financial aid.

Which Credit Cards Help Authorized Users Build Credit?
Building your credit with a little help.

Take Control Now With Advance Medical Directives
Creating a living will and other advance directive documents may be easier, and cheaper, than you think.

Why You Don’t Need 20% Down to Buy a Home
Many lenders don’t require 20% down. But read the fine print.

Why do wealthy college students get more financial aid?
Rich students are getting more scholarship aid.

Q&A: Credit scores measure Dad’s accounts, too

Dear Liz: I recently added myself onto my 95-year-old father’s two credit card accounts as an authorized user. I am his agent under a power of attorney and handle his finances. I noticed that after being added to those accounts, my credit scores increased. When he passes on, I plan to close those accounts. Will my credit score be negatively affected?

Answer: Possibly. Closing accounts doesn’t help your scores and may hurt them. Scoring formulas are sensitive to the amount of credit you have versus how much you’re using. Closing an account shrinks your available credit, and the formulas don’t like that.

If you have good scores and plenty of other open accounts, though, the damage from closing these accounts probably will be minor and short-lived.

Wednesday’s need-to-know money news

homebuyerToday’s top story: Credit cards that allow you to set spending limits for authorized users. Also in the news: 8 keys to getting approved for a mortgage if you’re self-employed, how to tell if you’re getting a good car deal, and how to find the best mortgage rates and lenders online.

Which Credit Cards Allow You to Set a Spending Limit for Authorized Users?
Setting limits.

Self Employed? 8 Keys to Getting Approved for a Mortgage and Buying a Home
It’s not impossible.

How to Tell If You’re Getting a Good Car Deal
Deciphering the doubletalk.

How To Find The Best Mortgage Rates And Lenders Online
Navigating the online mortgage waters.

Wednesday’s need-to-know money news

Today’s top story: When hybrid long-term care insurance makes sense. Also in the news: How to tell whether your credit card authorized user could become a problem, what pro athletes can teach us about retirement planning, and the 7 habits of highly effective investors.

When Hybrid Long-Term Care Insurance Makes Sense
Planning for the future.

7 Ways to Tell Whether Your Credit Card Authorized User Will Be a Problem
Proceed with caution.

What Pro Athletes Can Teach Us About Retirement Planning
Living below your means can protect your future.

The 7 Habits of Highly Effective Investors
Using your money wisely.