One of the challenges that comes with youth is the process of building a credit report
worthy of solid credit scores. There are a variety of ways to build a credit report. Some
are smart, and some are not so smart. One common myth about building credit is that if
you can add yourself to a parent’s mortgage you will build credit more quickly because of
the size of the loan obligation.
The reality is this; adding yourself to a mortgage loan for the purposes of building credit
is a bad idea. First off, adding yourself to a mortgage loan obligates you to pay back the
loan. You become just as liable for the payments as your parents. That means any debt
to income ratios calculated on your behalf will include the mortgage debt, which will yield
much less attractive ratios.
An effective method of building credit, quickly, is to have yourself added to a parent’s
credit card as an authorized user. The account will be reported to your credit reports
but you won’t have liability for the payments. If for some reason the credit card account
becomes delinquent you can have your name removed from the account. It’s very much
like having a credit card with training wheels.
As far as the speed with which you’ll establish credit, there is no difference between
having mortgage debt and credit card debt on your credit reports. Accounts don’t build
credit faster based on the raw amount of the debt. The speed your credit is established
is a product of the length of time the account has been opened. In fact, it’s very likely
that being added to an old credit card account as an authorized user will yield a much
more seasoned credit report than a brand new mortgage loan.
“The Credit Guru”, Longtime FICO Insider & Credit Industry Authority President Of The Ulzheimer Group, LLC
John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group, the Director of Credit Education at DisputeSuite.com, Credit Expert at CreditSesame.com and the credit blogger for Mint.com. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 150 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.
