What Is an Authorized User (And Will It Help My Credit)?
Your credit is an important part of your financial life, but establishing and maintaining a solid credit score can be a frustrating experience.
Your credit is an important part of your financial life, but establishing and maintaining a solid credit score can be a frustrating experience. If you have a very limited credit history, or if you have no credit history at all, it can be difficult to get approved for loans or accounts that would help you to start building credit. And if you have damaged credit, you’ll face similar challenges like rejections to your applications or sky-high interest rates.
So what do you do?
One of the options is to become an authorized user and essentially piggyback on someone else’s credit. While becoming an authorized user isn’t a magic solution that will solve every credit-related problem, it can be one part of an approach that helps you move towards a good credit score.
If you have no credit history, please see How to Build Credit When You Have None.
What is an authorized user?
An authorized user is a person who has permission to use someone else’s credit card. The owner of the credit card account is the primary cardholder, and that person has control over the account. The primary cardholder can add authorized users to the account (with the credit issuer’s approval). The authorized user gets his or her own credit card linked to the same account, but the ultimate responsibility to repay the debt remains with the primary cardholder.
The primary cardholder and authorized user will typically have some sort of agreement or arrangement as to who will be paying for the purchases made by the authorized user, but all of the responsibility from the credit card issuer rests with the primary cardholder.
There are a number of different scenarios when an authorized user might be added to an account. One example would be a parent adding a teenage child as an authorized user before the teen heads off to college. This would give the teenager access to the credit card without needing to qualify for a student credit card account. The bill would come to the parent each month, and it would be the responsibility of the parent to make sure that the bill is paid, regardless of who is actually paying.
Hear more about how to build credit from an early age in our interview with Alisa from Color My Credit:
Melissa and Alisa start talking about credit building activities for kids, teens, and college age children pretty early on in the interview (at around the 01:46 mark).
Joint Account Holder vs. Authorized User
An authorized user is much different than a joint account holder. Although both have access to use the credit card, the authorized user has no control over the account and cannot make changes to it. Even more significantly, an authorized user is not responsible for the debt, while a joint account holder does share the responsibility.
How Can It Help Your Credit Score?
As an authorized user, the account will appear on your credit report, assuming it is reported to the bureaus by the issuer. Most, but not all, issuers will report the data of authorized users. If your goal is to improve your credit, you should check with the issuer ahead of time to verify that they will be reporting to the bureaus for authorized users.
There are a lot of different credit scores out there and each one works a little bit differently, but authorized user accounts will impact your credit score in most cases.
If you’re an authorized user, your credit score may increase because of the characteristics of the account, even though you are not the primary account holder. If the account has a solid history and continues to be paid on time, you will be adding a strong tradeline to your own credit report.
This means that you would get the maximum benefit by becoming an authorized user on a credit card account that has been open for a long time, has no history of late payments, and has a low credit utilization rate (a small percentage of available credit being used). These are very positive factors that can help to increase your credit score.
For anyone who is looking to build or repair credit, this can be an ideal scenario. As an authorized user, you don’t need to get approved for your own account and you don’t even need to have the responsibility for making payments.
If you’re worried about overspending, you don’t even need to have a credit card at all. Most issuers will send a separate credit card in the name of the authorized user, but the card will typically be sent to the primary cardholder. The authorized user has no obligation to actually use the card. If your only purpose for becoming an authorized user is to boost your credit, you could shred the credit card when it arrives and never use it.
How long does it take authorized users to show on a credit report?
It takes 30 days for credit bureaus to register that an authorized user is now on someone else’s credit. Like we’ve said before, all things credit work in monthly cycles. This means that if you were to get added as an authorized user on your mom’s Costco credit card, it would show up on your credit after the next reporting date.
To know what day of the month each of your credit cards gets reported to bureaus, you can check in whatever tool you use to monitor your credit.
Who Can Be An Authorized User
The primary cardholder can add anyone as an authorized user. The process will vary a little bit depending on the credit card issuer, but sometimes authorized users can be added through the online dashboard of the primary cardholder. Otherwise, the primary cardholder can call the issuer.
Although most authorized users on personal credit card accounts are family members, this is not a requirement. That means you could be added to the account of someone in your family, a friend, or anyone who is willing to add you as an authorized user. In fact, there is an entire industry around selling tradelines where cardholders get paid to add strangers as authorized users. This isn’t illegal, but it violates the terms of service of most credit cards and could lead to the account being forcefully closed.
Although you could be added as an authorized user to just about anyone’s account, you need to be very careful because this also has the potential to damage your credit if you get linked to the wrong person.
The Risks of Being an Authorized User
From the details covered so far, becoming an authorized user sounds amazing. Having the opportunity to improve your credit score without the need to be approved for an account or your own, and without the responsibility to pay the debt sounds pretty good, right?
While there is a huge upside to becoming an authorized user, there are also a few significant risks that you need to be aware of.
It May Not Impact All of Your Credit Scores
As was mentioned earlier, not all credit scores will be impacted by authorized signer accounts. This approach can certainly help you to improve your score with some bureaus, but it may not provide universal improvement.
Additionally, some credit card issuers may not report to the bureaus for authorized users. If this is the case, it won’t impact your credit report or your credit score at all.
Your Credit Score Can Go Down
The idea is to latch on to someone else’s account and lift your credit score as a result. While this can work very well, you need to be aware that it’s also possible to damage your credit score.
As an authorized user, you have no control over the account. If the primary cardholder doesn’t make payments or makes late payments, your score may drop. Likewise, if the credit utilization rate increases significantly (like if the credit card gets maxed out), that could also hurt your credit score.
Because of this, you need to be extremely careful before becoming an authorized user. Be sure to ask the primary cardholder about their payment history and credit utilization rate. Ideally, the balance of the card should be kept below 30% of the credit limit.
Becoming an authorized user is not the only option for building or repairing credit. Here are a few alternatives that you may want to consider.
Credit Builder Loans
Many banks offer personal loans referred to as credit builder loans. The main purpose of these loans is to build or repair credit, so the requirements to qualify for these accounts are generally very low. Most credit builder loans will involve relatively small amounts of money, but they’ll give you the opportunity to make payments on a monthly basis and get some positive payment history onto your credit report.
Secured Credit Cards
Secured credit cards are intended for people who are looking to improve their credit. Unlike traditional credit cards, you’ll need to make a deposit to the issuer. The amount that you deposit becomes your credit limit, so there is no risk of racking up debt. You can use the card and make payments on a monthly basis to establish a strong payment history.
Student Credit Cards
When it comes to building credit, everyone has to start somewhere. Young adults typically have very limited credit history or no credit history at all. Certain credit cards have been created with students in mind. These cards generally have lower requirements for getting approved and they come with low credit limits, which prevents you from getting into a lot of debt. The downside to student credit cards is the high interest rate, so be sure that you’ll be able to pay the balance in full to avoid interest charges.
Get Your Rent and Utility Payments Reported to the Credit Bureaus
Typically, rent payments and utility payments will not impact your credit score, but there are some creative programs out there that may allow you to get a small boost from the payments that you’re already making.
Credit Karma provides the possibility to get your monthly rent payments reported to Equifax and TransUnion. Experian Boost is a free program that can help you to get credit for making your phone and utility payments.
These programs are not likely to have a huge impact on your score, but when you’re trying to build or repair credit, every little bit helps.
Monitoring Your Credit
Everyone should be monitoring their credit, but this is especially important if you’re working to build or repair damaged credit. By monitoring your credit, you’ll be able to keep an eye on your progress and see what’s working. You’ll also be able to spot any problems or inaccuracies as soon as they occur, so you can get that corrected before it does major damage to your credit.
Credit Karma offers free basic credit monitoring. You can check your score at any time, and you’ll also get alerts when there are any significant changes to your credit report.
Would you ever allow someone as an authorized user on your credit card? How did you build your credit? Share with us in the comments below.