When's a Good Time to Drop Dad's Card?

Dear Opening Credits,

Can you tell me if I'm doing the right things? I'm 23 and have one credit card, which is a Visa that my dad got me when I was in college. I have another Visa that is my bank card that I use for everything except for my gym dues. The dues are only $50 and automatically go on the card I have with my Dad and automatically gets paid. I've been doing this since I was 19. Is what I'm doing with my cards enough to build credit?

- Rob

Dear Rob,

You are most certainly on the road to fantastic credit! Can you do even better? Probably, but only with more of what you're already doing.

The plastic that you have from your bank sounds like a Visa debit card rather than a credit card. As you probably know, every time you use it, the money comes straight out of your checking account. There's no borrowing involved so the activity is not showing up on your credit report.

However, that doesn't mean that your good work isn't going unnoticed. You've been developing a positive relationship with your bank, and that will help you down the line. One day you may want to buy a car or even a home, and the alliance you've formed with your bank can come in mighty handy. As a longstanding customer, you're valued. Because of that, you may qualify for a loan with better terms than someone the bank has no association with.

Your other Visa is indeed a credit card, and while your father helped you get it with his signature, evidence of it has been appearing on your (and his) credit report since the day it was opened. Each time your gym membership dues were added to your account, the issuer stepped in to front you the money. Then, when the cash came out of your checking account on a certain day, the issuer got its funds back.

This seamless, steady credit and cash flow has been making you look wonderful in the eyes of your current and future lenders. Not only has it been recorded on your credit reports, but the information has been factored into your credit scores. Payment history and credit utilization are extremely important in these scoring systems. Since you've paid on time and not carried over a balance, while also using the card on a regular basis for four years, you've been doing everything right.

The only other action I can recommend is for you to obtain a different card, in your name only. It was lovely of your dad to step in and help out, but now that you're above the age that a co-signer or joint account owner is necessary, I have no doubt that you can get your own credit card.

Before applying, check your credit rating to see exactly where you stand today. First, go to AnnualCreditReport.com to order free copies of your credit reports from each of the big three credit bureaus (Experian, Equifax and TransUnion). Make sure they are correct and free of fraud. If you notice anything that seems wrong, dispute it with the bureaus online. You don't want an error to hold you back. Then, get your FICO scores from myFico.com for about $20 each (each credit bureau generates a FICO score based on your credit report). You don't have to order all three, just one or two will do. Excellent scores are in the mid-700s and up, so see where yours are. Then, armed with that information, go to the CardMatch page on this site to see which types of cards you qualify for. Review the terms and interest rates of each card and pick the one that seems to be the best fit (hint: look for the lowest annual interest rate and low or no annual fee).

Once approved, use it just as fabulously as the one you have with your dad. Oh, and you can choose to keep that original account active or, after you've established a great relationship with the fresh account, either close it or have your name removed from the account (talk to your father about this, though, as canceling the account may affect his credit rating if it is a joint account). For scoring purposes, it is usually better to keep older accounts alive, but you have to weigh that against being totally independent. Personally, I'd take the small and temporary hit, but that's up to you.