If you are attempting to establish or build your credit, choosing to be an authorized user on a credit card could benefit you. But you’ll want to know what being an authorized user does to your credit score.
In the situation where you are starting out or working to rebuild your credit, you may not be able to meet the requirements of a new credit card. If you have someone in your life that is willing to trust you as an authorized user, they simply add your name to their credit card account. You can actually develop a good or even excellent credit score just by being an authorized user on a credit card.
Sounds easy but you should be aware of what being an authorized user does to your credit score. We will show you the pros and cons.
What is an authorized user?
An authorized user is a person who has permission to use someone else’s credit card. If you become an authorized user, you will be able to make purchases and use the card as if it were your own. But you don’t own the account. The person who owns the credit card account is called the primary account holder.
Most credit card companies will let the primary account holder add an additional person to their credit card account. This could be a child or employee or whoever. As an authorized user, you do not have to actually apply for the credit card. This is unlike a joint account where you would be required to formally apply for the card with a credit check. The primary cardholder will need to provide the following to add you as an authorized user:
- date of birth
- social security number
Once added to the account, you will receive a credit card with your name on it. So you can use the card just as if you are the primary cardholder. There is no separation of purchases. They’ll all appear on one credit card statement to the primary cardholder. It is good to realize that you will share the credit limit with the primary account holder. Also, some credit card companies may charge a fee or alternatively offer rewards for adding an authorized user to your account.
What am I responsible for as an authorized user?
As an authorized user, you cannot make any changes to the account. Your credit card allows you to make purchases, but you cannot make account changes such as adding users or increasing the credit limit. While you are not legally responsible to pay any debts you accrue, most likely the primary account holder would appreciate you paying back. Ultimately, paying off the credit debt is the primary account holder’s responsibility. In most cases, you can make payment on the account, even though you’re not obligated to.
What is the positive effect of being an authorized user?
A major reason to consider being an authorized user is that many card issuers report credit activity made by authorized users to the credit bureaus. This is not always the case so if you are considering becoming an authorized user, make sure you find out about the credit card company’s policies. You’ll want the credit card to provide primary and authorized user information so that you receive a boost for good credit behavior.
Being an authorized user will grow your score only if the account has a positive payment history and low credit utilization. Make sure your primary account user is financially responsible to be making on-time payments. It is also good to realize that while this account’s activity will boost your score, authorized user accounts are given less weight overall, as compared to a primary cardholder account.
What can go wrong in being an authorized user?
If the credit card account is reported to the credit agencies, the primary account holder’s credit behavior impacts your credit. This is beneficial as we’ve explained if they make on-time payments. But, if the primary user misses just one payment or accrues too much debt, your credit could suffer.
Likewise, if you rack up too much debt on this card, not only will your credit take a hit, but the primary card holder’s credit will as well. This also can put a strain on your relationship with this person. You both need to enter into this agreement responsibly.
Will being an authorized user build up my credit score?
As we have explained, your credit score will get a small boost if you are on a good-standing account and if the creditor reports authorized accounts to the credit bureaus. However, it is good to note that by itself, an authorized user account will not be enough for great credit health. If you are trying to rebuild your credit or just starting out, you may want to consider further ways of establishing credit including a secured credit card or a credit-builder loan.
If you are considering becoming an authorized user, make sure you choose a solid primary account holder. They should have a strong history of on-time payments and not take on too much debt. You’ll be able to have the convenience of a card as well as the ability to build your credit. As we have shown, make sure you trust this person to behave financially responsible and be trustworthy yourself. Becoming an authorized user will put you well on your way to establishing a great credit score.