How being an authorized user affects your credit score
Being added as an authorized user on someone else’s credit card account can help improve your bad credit score and build your credit. While it can’t completely move the needle from a bad credit score to an excellent credit score, “piggybacking” off of someone’s more established credit history can help you if you have a thin credit file.
However, adding an authorized user to your account can be risky depending on who you decide to partner with. This may hurt your credit score if the authorized user treats it irresponsibly. All we’re saying is—you should maybe think twice about letting your teenage brother run around with a credit card hooked up to your account.
Read on to learn more about the potential risks and benefits of authorized users.
What is an authorized user?
An authorized user is any person other than the primary cardholder who’s able to use credit cards on the account. For example, your parents may have given you an “emergency” credit card as a teenager. You were able to use it because they added you as an authorized user on their account. As an authorized user, you aren’t responsible for paying the bill at the end of the month. However, if the primary account holder is irresponsible in making payments, it may negatively affect your credit score.
Impact of an authorized user on your credit card account
Here’s a quick breakdown of what you should know when considering adding an authorized user to your account:
- Liability. The primary account holder is still liable for any spending on the credit card, including their own and any spending by authorized users.
- Basic benefits. Authorized users typically can enjoy all the basic benefits included with the credit card accounts. These include travel insurance or reimbursements for stolen goods.
- Exclusive benefits. Authorized users usually aren’t allowed to access more exclusive or premium credit card benefits, like travel or hotel rewards.
- Account permissions. Think of this as a business network. Authorized users have “manager” access to the credit accounts. They can make payments to reduce debt, report lost credit cards and access monthly statements. The primary cardholder maintains overall “admin” access, so only they can change login information or add more authorized users.
- Cost. Adding an authorized user is usually free. In some cases, it will involve a small annual fee for each user. Many credit card accounts also limit the number of users you can have per account.
- Credit history. Authorized users don’t need any previous credit history built up. This is one of the main reasons this can be a great way for them to increase their credit scores and start building credit.
- Credit card options. Authorized users are allowed by most credit card issuers. However, there are some premium accounts that don’t allow them.
Who makes a good authorized user?
Here are a few of the most common instances where others get added as authorized users:
- Employers and employees: Adding employees as authorized users can be a good fit for small and mid-sized businesses. Doing this gives employees access to travel perks associated with the credit card issuer. It also makes processing reimbursements easier for the company.
- Parents and children: Some parents add their kids as authorized users to help them increase their credit score early on and teach them about credit. A lot of children receive credit cards from their parents for emergency use. Some also add their high school and college-aged children as authorized users for convenience. It can get hard to keep up with transferring money for textbooks or Ubers.
- Partners and spouses: Some couples may choose to have one person as the primary cardholder and one as an authorized user. This could be because one partner needs to improve their credit score, or wants to build up rewards on a work-specific credit card. One spouse might also have a higher credit score than the other and therefore qualify for a better credit card.
How to add an authorized user to your account
To add an authorized user, you’ll need to contact your credit card issuer. They typically ask for the personal information of the one you are adding such as their name, birth date and Social Security number. Once the process is finalized, you can request for the new user to receive a card of their own.
Can being an authorized user help your credit score?
Yes, being an authorized user can help your credit score if you’re still building credit. You’ll have a thin file if you’re just beginning your credit journey and don’t have much credit activity to report on. Most credit bureaus track any authorized user activity in their annual credit reports, where you’ll find your credit score.
Your credit history makes up 15 percent of your overall credit score. By piggybacking off of someone with established credit, you can bulk up your own report and earn a higher credit score. Though being an authorized user is most useful for people with limited credit history, it can also help those with a more detailed credit history in a few ways.
Credit bureaus also factor in the mix of credit you have, the average age of your credit accounts and your credit utilization (the ratio of available credit to the amount owed) into your credit score. Attaching yourself to a credit account without a late payment history can help boost each of these variables. Doing so and keeping up good credit practices can help your score increase in a timely manner.
How to build your credit score as an authorized user
As an authorized user, you likely haven’t had much experience in building credit. Since this is a big responsibility, you’ll want to make sure you’re putting your best foot forward. It should take around six months for an authorized user to begin building credit from scratch.
The following are a few rules of thumb you’ll want to follow to raise your score:
- Make sure you work with a reliable primary account holder. You want to make sure that the owner pays off at least the minimum amount required at the end of every billing period. Poor payment history on their part can hurt your credit since you are under their account.
- Keep your credit utilization low. As a first-time user, it may feel exciting to have a large number of funds available. You’ll have more freedom to continue spending, which can get dangerous, especially at a young age. Keep in mind that doing this can put the primary account holder in a compromised position. Aim to use only 30 percent of your overall credit limit, because using too much can hurt your credit score.
- Establish a credit mix. Having multiple lines of credit can build up your score immensely. This will show lenders that you’re capable of managing your credit and money. As an authorized user, you may want to consider also opening up different accounts of your own. Secured credit cards and college credit cards are both great ways to start building your credit mix.
How can authorized user benefits come in handy?
In addition to helping people with a thin file build up their credit score and increase their credit limit, adding an authorized user to a credit card account can be beneficial. A few of the most common authorized user benefits are:
1. Simplified business expenses
For small and medium businesses especially, adding employees as authorized users on the company credit card can be the easiest way to handle business travel and reimbursements. It’s much easier to give employees credit cards to use instead of processing reimbursements for work-related transactions.
2. Share authorized user perks
As mentioned above, authorized users can usually access all of the basic card issuer add-ons just like the primary cardholder. This is very useful for travel benefits such as travel accidents and trip cancellation insurance. Other common benefits include reimbursements on certain lost or broken items, rental vehicle collision insurance, extended warranties on certain high-ticket goods and price protection guarantees.
3. Reap greater credit card rewards
Most card issuers offer rewards for spending a certain amount each month. Some examples include airline travel points, cashback rewards or welcome bonuses for spending a certain amount when the account is first opened. Authorized users can rack up these rewards when using their credit card, but typically only the primary cardholder can reap these more exclusive rewards.
The risks of adding or being an authorized user
Though quickly racking up all those rewards sounds great, adding an authorized user can be risky when it comes to both parties’ credit scores. Because you’re basically sharing a credit card account, each person’s actions on the account will affect the other.
If an authorized user acts irresponsibly on the account, this creates a huge burden for the primary account holder. This person is ultimately responsible for all associated credit card debt when the monthly bill rolls around. It would be an unpleasant surprise to learn that your authorized user had spent hundreds or even thousands of dollars outside their budget and that you’re liable for the bill.
However, not all of the risk is on the primary account holder. Any actions taken by the primary user will show up on the authorized user’s credit report and impact their credit score. For example, if the primary account holder has a history of late payments, that negative history will be reflected on the authorized user’s credit report as well.
For these reasons, authorized users need to have a solid and trusting relationship with the primary account holder. The goal is for this partnership to increase, not decrease, both people’s credit scores.
How to remove an authorized user from your account
There may come a point when you no longer want an authorized user on your account. This could happen if you see the individual acting irresponsibly or if they now have an account of their own. Removing a user is very easy. You’ll need to contact your credit card company and request the removal. From there, the company will take care of the rest and deactivate the user’s card under your account.
Does removing an authorized user hurt your credit score?
As the primary cardholder, the act of removing an authorized user won’t affect your credit score.
Removing them actually means they will no longer have any impact on your score with their purchasing activity. Credit card companies, however, will still report authorized users’ previous history to the credit bureaus. For example, if they spend a lot of money, you may be unable to pay it off in a timely manner. Your credit card company may send this to the bureaus, thereby affecting your credit report and score.
When you remove an authorized user, it may cause their credit score to temporarily drop, because removing the user will close one of their lines of credit. This primarily affects the length of their credit history, which impacts 15 percent of their overall score. However, no further activity will be reflected on their report or factor into their credit score.
That should cover almost everything you might need to know about authorized users! To get started, you can simply contact your bank online and provide a few identity verification documents. As you go through the process, make sure your authorized user knows how to spend responsibly and manage their credit. Take a look at CreditRepair.com’s credit repair resources for additional guidance on repairing or building credit.
from a Credit Expert