Having a good credit score is hard work especially if you have no credit history or someone who’s been delinquent on their debt payments in the past. Improving your credit score to achieve those financial milestones can be even harder. Becoming an authorized user on a credit card is one way to improve your credit history without having to be on the hook for monthly payments.
What Does it Mean to be an Authorized User
They are defined as someone who is granted permission by the primary account holder to use their credit card account. Authorized users can make purchases, but they are not legally responsible for repaying the debt incurred on the account. The primary account holder retains full responsibility for managing the account, including making payments and maintaining the credit card balance.
While authorized do not have the same level of control or responsibility as the primary account holder, credit activity associated with the account, both positive and negative, may still be reflected on the authorized user’s credit report, depending on the policies of the credit card issuer and credit reporting agencies.
Who Should You Ask to Add You as an Authorized User
Start by selecting someone you can trust who practices healthy credit habits most importantly, someone who pays their bills on time and keeps their credit utilization low. Think carefully before you make your decision though there’s potential upside to being an authorized person, putting yourself on the wrong person’s account could have a detrimental impact on your scores. An important point to note is that the primary account holder’s credit scores will not be affected by adding you as an authorized user, even if your credit history is limited or needs work.
How Being an Authorized User Impacts Your Credit
The impact of adding a user to a credit card account on credit scores can vary depending on how the account is managed and the credit history of both the primary account holder and the authorized user. It’s essential for both parties to understand the potential implications and communicate effectively about credit card usage and responsibilities.
Below we have identified how adding an authorized user to your credit card account can potentially impact both your credit score and the credit score of the authorized user.
Positive Impact on the Primary Account Holder’s Credit Score
If the primary account holder maintains good credit habits, such as making timely payments and keeping credit card balances low relative to the credit limit, adding an authorized user can potentially benefit their credit score.
The positive payment history and responsible credit management associated with the credit card account may be reflected on the primary account holder’s credit report, contributing to a higher credit score.
Impact on the Authorized User’s Credit Score
Where the primary account holder has a good credit history and manages the credit card account responsibly, being added as an authorized user can potentially help the authorized user build or improve their credit score.
The authorized user may benefit from the positive payment history, low credit utilization, and other favorable credit factors associated with the credit card account. These factors can contribute to a higher credit score for the authorized user.
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Negative Impact on Both Credit Scores in Case of Mismanagement
If the primary account holder misses payments or engages in other negative credit behaviors, it can negatively impact both their credit score and the credit score of the user.
Negative activity on the credit card account, may be reflected on the credit reports of both the primary account holder and the authorized user, potentially lowering their credit scores.
How Does an Authorized User Build Credit
An authorized user builds credit when the credit account holder maintains responsible credit habits that help a credit score grow, such as making on-time payments and paying off balances in full.
- Positive Payment History. The primary account holder’s responsible credit behavior, such as making timely payments, is typically reported to the credit bureaus. This positive payment history can be reflected on the authorized user’s credit report, helping to establish a record of on-time payments.
- Credit Utilization. If the primary account holder maintains a low credit card balance relative to their credit limit, it can result in a low credit utilization ratio. This favorable credit utilization can positively impact the authorized user’s credit score by demonstrating responsible credit management.
- Length of Credit History. If the primary account has been open for a long time, being added as an authorized user can potentially increase the length of the authorized user’s credit history. A longer credit history generally reflects positively on credit scores.
- Credit Monitoring. Being added allows individuals to monitor their credit activity and learn about responsible credit card usage from the primary account holder. This can help them develop good credit habits and financial responsibility over time.