Whether you’re looking to lengthen your credit history or increase your credit scores, becoming an authorized user can help establish better personal credit. And anyone with a credit card may have an authorized user added to the account, making it an easy process.
However, several responsibilities come with being an authorized user, which should not be taken lightly. If you’ve been asked to become an authorized user or you want to become one on someone else’s credit card account, it’s helpful to know the exact impact it could have on your credit scores.
Definition of an Authorized User
An authorized user is a person who has access to someone else’s credit card but is not an actual owner of the account. You may be added as an authorized user on a credit card, checking account, or other financial accounts. This means you have access to the money or the credit card, but you aren’t liable for any payments.
If you’ve granted someone authorized user status to one of your accounts, your credit card issuer may allow you to limit the authorized user and how much of the money they have access to.
Other credit card issuers may give them equal access to your funds. In either case, the primary cardholder receives the bill and must make the payments regardless of who uses the account.
Why Become an Authorized User
There are two basic reasons you might become an authorized user on someone else’s credit card account. The first reason is to gain access if the primary cardholder should need them to take over or obtain funds for some reason.
An example of this is when adult children are added as authorized users to their parent’s financial accounts. If the parent becomes unable to use the account, either obtaining the funds or paying the bill, the adult child on the account can manage the account on their parent’s behalf.
Adding Your Teenager as an Authorized User
The student may even be the account owner, with the parents added as authorized users. This allows parents to add money as well as debit the account.
The second reason people become authorized users is to build credit. In the example where parents add their young adult child as an authorized user on their credit card, this account will show up on the child’s credit report.
For someone just starting with no credit history, being added as an authorized user can give them an exceptional advantage. In fact, if the primary cardholder’s account has an excellent credit history, the authorized user will also have an excellent credit score without ever having had an account on their own. This is because the credit card shows up from the original date the parent opened it, not when they added the child.
How Being Added as an Authorized User Can Benefit Your Credit Score
If you have no credit or poor credit, being added as an authorized user can help you build some positive credit history. The account will be reported to the credit bureaus and listed on your credit report. It will show the full payment history from when the primary cardholder opened the account.
Any positive information helps to improve your credit score, even if you’re only an authorized user. It also encourages other creditors to offer you a credit card. You may be able to get approved for your own credit card that you wouldn’t otherwise have access to.
This would enable you to continue building credit on your own. Remember to always use credit cards responsibly and never charge more than you can afford to pay off.
How Being Added as an Authorized User Can Hurt Your Credit Score
Just as your credit score is affected by the primary cardholder’s positive history, it’s also affected by any negative activity. For instance, if the primary cardholder fails to make a payment, maxes out their credit limit, or otherwise engages in negative behavior, the authorized user’s credit score will also be affected.
While it will most likely hurt them more than you, it still damages your credit rating. So if you’re trying to build or rebuild credit, you could potentially end up doing more harm than good.
Similarly, your actions in using the credit card also impact the account holder. If you charge a bunch of stuff to your credit card, they are ultimately the ones legally responsible for paying the balance.
You may not even be aware of the balance or the impact of your credit card spending spree because the statement goes to the primary cardholder rather than you as the authorized user.
Adding an Authorized User to a Credit Card Account
Each credit card company has a different process for adding and removing authorized users to a credit card account. For example, some credit card issuers require you to call them, while others allow you to add an authorized user online. However, credit card companies generally allow anyone to become an authorized user as long as the primary cardholder approves it and submits a request.
Be careful who you allow to add you to their account. What the primary cardholder does, impacts your credit, and it could also strain your relationship. You want to know for sure that they are making on-time payments, and they’re responsible enough not to do anything that causes damage to their credit score or your own.
Authorized Users vs. Joint Accounts
There are responsibilities and privileges for both. As an authorized user, you are allowed to use someone’s account.
As a joint account holder, you are equally responsible for the account as the other person. While this means you have more authority and the ability to make changes to the account, you are also held just as liable for missed payments.
Total Debt & Debt Utilization Ratios
One area where you can see the difference is with total debt and debt ratios.
As an authorized user, the credit card account doesn’t count against you when lenders calculate how much debt you owe to be approved for a loan. With a joint account, the payments and balance count against you and could reduce the amount you’re approved for.
Another way authorized users are different from joint account holders is in the approval process. As an authorized user, the creditor won’t do a credit check or even require an application in most instances.
The account holder just needs to give a name and Social Security number for the person to be added. For a joint account, the joint account holder has to go through the complete approval process. It’s like the person is applying completely on their own.
Removing an Authorized User
The primary cardholder can remove an authorized user at any time. The authorized user may also remove themselves by contacting the credit card issuer.
Being removed can impact a person’s credit scores, but just how much depends on several factors. Once an authorized user has been removed, the account history will stop reporting as if the account was closed. This will most likely result in a negative impact, but the result depends on other information on the credit report. The two areas it will most impact are the length of credit history and debt utilization. Let’s take a look at some examples.
If you were added to a credit account as an authorized user several years ago and you just recently got your own first credit card, expect your credit history to drop by quite a bit. But overall, the length of credit history only plays a small role in your credit score, so the change might not be dramatic if your other areas are strong.
A bigger impact is felt based on your debt utilization. If you have other credit cards and they are all maxed out, your debt utilization rises if the card didn’t carry a large balance. Creditors look at your total available credit against your balances to see how much you utilize your credit.
For example, say you have two credit cards with a credit limit of $1,000 each. You are an authorized user on another credit card with a limit of $1,000. Your two credit cards are completely maxed out, but the other one has a zero balance.
Currently, you are using two-thirds or about 66% of your credit. So if you take away the credit card you’re an authorized user on, your credit utilization goes up to 100%. And your credit score takes a hit because credit utilization accounts for about a third of your credit rating.
What to Consider When Becoming an Authorized User
You should first consider your reasons for being an authorized user. If your goal is to build credit, you should work towards building your own credit and only use this as a stepping stone. Make sure you handle your own credit and that of the primary account holder responsibly.
Look at the authorized user account as temporary assistance rather than counting on it for the long term. It will have a less negative impact when you’re removed if you have built up your own credit profile.
Make sure you know the person well and trust them before being added to their account. Set ground rules about your role. Are you responsible for making payments, or will you be expected to pay off the balance as it comes due? Both of you should be on the same page as to how you will handle credit.
Becoming an authorized user on an account is one way to help a person begin to build their credit history. However, it is not without some risks and challenges. Be prepared to deal with these so that you can reap the benefits.