Everyday Cheapskate

Dear Mary: I work for a credit card company that is increasing the interest rates for all cardholders. I want to help my mother avoid the hit by adding myself to her account as a secondary owner. That way, she would receive my special employee interest rate, which is half of what her new rate would be otherwise. She carries a large balance close to the limit. She has a stellar payment history, and her account has been open for 20 years. I understand that I would become legally responsible for the debt. How much of a direct impact would that have on my credit score? I'm trying to rebuild it from past credit blunders. Would it improve my score because her account is well-established, or would it hurt it because of the balance? Could my bad credit affect hers? — Mark, e-mail

Dear Mark: FICO 08, which is the scoring model used by 80 percent of lenders in the U.S., gives significant weight to the amount of available credit the credit card holder is using at any given time. You should use no more than 30 percent of your available credit for the best score. Taking on your mother's debt would lower your score significantly because the important gap between how much you owe and how much available credit you have would be too slim.

Though she already may be taking a hit to her credit score because she is using so much of her available credit, once she became a co-owner with you, your negative credit history would impact her score, as well. Because her account is "well-established," you may get a couple of positive points, but I wouldn't count on that improving your overall score.

This is a risky thing you are considering.

As you stated, you would become legally responsible for the entire balance. As it is now, you are not, nor would you be responsible if she were to die with a balance remaining on that account.

Dear Mary: You recently said that consolidating debt always spells trouble and that using home equity to consolidate credit card debt is a bad idea. What's wrong with getting a lower interest rate and combining balances? — Jenna, e-mail

Dear Jenna: Where do I start? If you default on a credit card balance, the creditor will trash your score and possibly sue you. But that lender cannot take your house. If you default on an equity loan, however, the lender will take your home, and you'll be on the street with the kids and your plasma TV.

Another problem is human nature. Most people who do as you suggest don't change their spending habits. They don't consider why they got in over their heads with high-interest debt. They transfer the debt to their homes through equity loans and believe they've paid off those credit cards. They don't close the credit card accounts, and in about two years, they find themselves with all the accounts maxed out again. That leaves them with double the trouble.

Do you have a question for Mary? E-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. Mary Hunt is the founder of www.DebtProofLiving.com and author of 18 books, including "Can I Pay My Credit Card Bill With a Credit Card?" To find out more about Mary and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.

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