Dear Liz: My credit scores are good (over 800 when I refinanced my mortgage last year). I was thinking of listing my son, who is 14, as an authorized user of my credit cards to start establishing his credit history. Will it work? Is there any other way to help him? If it is too early, when is a good time to start?
Answer: As long as you handle your credit cards responsibly — using 30 percent or less of your credit limits and paying on time — adding your son as an authorized user could indeed help him build his credit history.
This is important, because under the credit card reform law that goes into effect in February, people younger than 21 will have a much harder time getting credit cards and thus building credit on their own. Yet they will need good scores to get apartments, good insurance rates and decent loan rates when they leave the nest.
Adding a child as an authorized user to a card is a low-risk way to build his credit since you don’t have to give him the card or access to the account. Instead, your history with the card is simply added to his credit reports, assuming your credit card issuer agrees (call and make sure first; some issuers report authorized-user information only for spouses). All versions of the leading FICO credit scoring formula factor authorized-user information into their scores, although the latest iteration — FICO 08 — limits how many authorized-user accounts are included.
When you decide to do this is up to you. A longer credit history is generally better, but you should add him only when and if you’re comfortable doing so.
If you decide to do this, discuss with your son the reasons why and also take the opportunity to talk about responsible use of credit. Make sure he knows the importance of paying all balances in full every month and how carrying credit card debt is foolish and expensive.
Dear Liz: We’re refinancing our mortgage and home equity loan and will be paying about $200 less per month. Would we be better off applying this extra money toward the mortgage so we can pay it off in less than 15 years? Or would it be better to put it into savings or invest it?
Answer: Most people have better things to do with their money than pay off a low-rate, tax-deductible debt such as a mortgage — especially if you’re already on the road to paying it off in 15 years.
You should first make sure you’re on track with your retirement plan. If you’re not already getting the full company match from your 401(k) or 403(b), that extra $200 could win you an instant 25 percent to 100 percent return, depending on the generosity of the company match.
Even if your plan doesn’t have a match, you could get a tax deduction on your retirement contributions that you won’t get paying down the principal on your mortgage. Plus, your money is likely to earn greater returns over time than what you’d net by paying off your loan early.
If you’re maxed out on saving in your workplace plan, consider contributing to a Roth IRA. If you’re on track for retirement, paying off other debt and bolstering your emergency fund would be the next smart moves.
Dear Liz: Most of the articles I read about saving money seem to be written for people who make a lot more than I do. I don’t eat out, drink lattes or buy clothes anywhere other than discount stores. Where are the articles for me?
Answer: All over the Internet. Start with one of the oldest frugal-living sites, the Dollar Stretcher, at www.stretcher.com. It’s filled with articles and tips for every budget, including the tightest. Mary Hunt’s Debt-Proof Living at www.debtproofliving.com is another good one to try.
Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form atwww.asklizweston.com.
