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Being an authorized user on a parent's credit card can help you build up a credit history of your own, even if you're still in high school or college and don't have a steady income yet. But as you start to work and get bills of your own, you may wonder how long you should stay attached to a parent's credit card.
Eventually, you'll want to strike out on your own, but it's not a leap you should make before you're ready. It's generally best to stay as an authorized user on your parents' credit card accounts until you've built up your own credit and are financially prepared to handle your own credit card payments.
If you think you're ready to make the move to a credit card of your own, read on.
When Is It Time to Leave Your Parent's Account?
Before deciding whether to leave your parents' credit card accounts, there are a few things you should consider. It may be time to remove yourself from the accounts when you've built up enough credit to qualify for your own lines of credit, which will help you build a credit history. The length of your credit history is a factor in determining your credit score; getting started early can make it easier to get approved for future borrowing or help you nab you lower interest rates.
You should also wait until you're financially stable enough to make all your payments on your own and know how to use a credit card responsibly. You'll no longer have your parents on the account to fall back on if you miss a payment or drive up debt. Charging more than you can afford on credit cards will work against you if it hurts the credit score you're trying so hard to build.
One downside of asking to be removed from a parent's card is that the credit account may be taken off your credit history. This could have an impact on the length of your credit history, which is a factor in your credit score. But building a positive payment history of your own could work to improve your credit score more than the loss of the authorized user account would bring it down, so the tradeoff is generally worthwhile.
How to Graduate From Your Parent's Credit Card Account
Being an authorized user on a parent's credit card account is a great way to learn how to manage credit card spending and pay down debt. But if you think you've learned enough and are ready to transition off of one or more of their credit card accounts, here's how to do it the right way:
1. Check Your Credit Score and Reports
It's important to check your credit report and credit score before leaving your parent's account. You need to make sure your credit is good enough to open up your own accounts. When you're young and new to credit, you may have relatively low credit scores, but being an authorized user should have helped yours improve.
2. Apply for Credit
To make the transition as easy as possible, you should open your own lines of credit before leaving your parents' account. A secured credit card can be a good option.
Secured credit cards are "secured" by a refundable deposit that serves as collateral on the account. Otherwise, they function just like any credit card. Secured credit cards are designed for people who are building or rebuilding credit, or have a thin credit file—that is, a limited history of credit. As a result, these cards generally have less stringent credit requirements than traditional, non-secured cards.
Before applying for a secured credit card, make sure the card issuer reports your payments to the major credit reporting agencies (Experian, TransUnion and Equifax). Not all of them do, and unless this activity is reported to credit bureaus, using the card won't help to build your credit score.
When choosing a secured card, it's smart to go with a company that issues both unsecured and secured credit cards. Doing this can ease the transition to an unsecured card as your credit score improves. Unsecured credit cards typically have lower fees and higher credit limits than secured cards, and don't require a security deposit. Some secured card issuers will automatically transition you to an unsecured card once you've made regular payments for a set period of time.
Also keep in mind that you may qualify for an unsecured credit card and not need to apply for a secured card. With the credit history your authorized-user status has created for you, plus any other credit you may have (such as student loans), you may have a wider choice of cards than you think.
3. Establish Your Own Credit for a Few Months
Once you've got your own credit card, there's no rush to get off your parents' credit cards just yet. Use your new credit card for three to six months to make sure that you can appropriately manage your new line of credit before moving off your parents' account.
"Using your new credit card" doesn't mean making lavish purchases. Instead, it means making small credit card purchases every month and paying them off in full and on time. Paying your bills on time is the single biggest factor in building a good credit score; consider setting up autopay for at least your minimum payment amount so you never miss a due date.
Making small purchases helps ensure you can pay your bill in full every month instead of carrying a balance. Paying your bill in full helps minimize your credit utilization ratio, which is another factor in your credit score. Both of these actions prove to credit reporting agencies—and to yourself—that you can manage credit wisely without getting in over your head.
4. Remove Yourself as an Authorized User
After you're satisfied you can manage your own credit account, it's time to go it alone. It's easy to remove yourself as an authorized user from your parents' accounts, all you need to do is contact the credit card company. Your parents don't need to do anything.
If there's any change to your credit score, there's no need to panic: Simply keep using the credit you've established in your own name, pay your bills on time every month and avoid carrying a balance. Keep up this good behavior and your credit score should gradually improve.
Learning to Use Credit on Your Own
As you continue to use your own credit cards, open new credit accounts and build your credit history, it's a good idea to keep an eye on your credit. Free credit monitoring can help you track the progress of your credit score over time, so you can see your successes (and get alerted to any problems or fraudulent activity). Just as with so many other things, the more experience you gain with credit, the more confident you'll be—and the better you'll be able to navigate the world of credit.