Think you’re ready to level up your credit score without even applying for a new credit card? Becoming an authorized user on someone else’s account can be a powerful tool. It allows you to piggyback on their responsible credit habits and build your own credit history. But how does it work, and is it the right move for you? Let’s dive into the world of authorized user status and uncover everything you need to know.
What is an Authorized User?
Definition and Purpose
An authorized user is someone who is given permission to use a credit card account by the primary cardholder. The authorized user receives their own credit card with their name on it, linked to the primary account. While they can make purchases using the card, they are not legally responsible for paying the bill. That responsibility rests solely with the primary cardholder.
- Authorized users build credit history based on the primary cardholder’s responsible credit card usage.
- It’s a common way for parents to help their children establish credit.
- It can also be a helpful tool for spouses or partners managing household expenses.
Key Differences Between Authorized Users and Primary Cardholders
Understanding the difference between an authorized user and a primary cardholder is crucial:
- Responsibility for Debt: The primary cardholder is legally obligated to repay the debt. The authorized user is not.
- Account Management: The primary cardholder controls the account – setting spending limits, requesting card replacements, and ultimately closing the account. Authorized users generally have limited or no account management abilities.
- Credit Impact: Both the primary cardholder and authorized user’s credit reports reflect the account history. However, the primary cardholder’s credit score is more heavily influenced as they are responsible for payment.
- Application Process: The primary cardholder adds an authorized user to their existing account. The authorized user doesn’t have to apply for credit or undergo a credit check (though some lenders may request certain information).
Benefits of Becoming an Authorized User
Building or Rebuilding Credit
The most significant benefit is the potential to build or rebuild your credit history. If the primary cardholder uses the card responsibly and makes on-time payments, those positive habits are reflected on your credit report. This can lead to:
- Improved credit scores
- Easier approval for loans (mortgages, auto loans, personal loans)
- Better interest rates on future credit products
- Increased credit limits on your own credit cards
Example: Suppose Sarah has no credit history. Her mother, who has excellent credit, adds Sarah as an authorized user to her credit card account. After a few months of on-time payments by Sarah’s mother, Sarah’s credit score begins to improve, making her eligible for a student loan.
Access to Spending Power
Being an authorized user provides access to additional spending power. This can be useful for:
- Emergency expenses
- Travel accommodations
- Purchases when you may not have sufficient funds available on your own accounts (but know funds are coming to cover it)
- Earning rewards points or cashback if the card offers a good rewards program
Important Note: Even though you’re not legally responsible for the debt, you should always communicate clearly with the primary cardholder about spending habits and repayment plans.
Convenience and Rewards
Authorized users enjoy the convenience of having a credit card without the burden of applying for one. Furthermore, you can often benefit from the card’s rewards program.
- Earning travel points, cashback, or other rewards on your spending
- Potentially accessing exclusive perks and benefits offered by the card
Potential Risks and Downsides
Negative Impact from Primary Cardholder’s Mismanagement
The biggest risk is that the primary cardholder’s irresponsible behavior will negatively impact your credit score. Late payments, high credit utilization, or even account default will all be reflected on your credit report.
- Carefully consider the primary cardholder’s financial habits before becoming an authorized user.
- Discuss your concerns with them openly and honestly.
- Regularly monitor your credit report to ensure no negative activity is affecting your score.
Lack of Control
As an authorized user, you have limited control over the account. You cannot:
- Increase the credit limit
- Negotiate payment plans with the credit card company
- Close the account
You are entirely reliant on the primary cardholder to manage the account responsibly.
Impact on Your Own Credit Applications
While being an authorized user can help build credit, lenders may take it into account when you apply for your own credit. Some lenders may not consider authorized user accounts as “true” credit history, especially if the credit limit is very high relative to the authorized user’s income or if the account history is very short.
How to Become an Authorized User
Steps to Follow
Becoming an authorized user is typically a straightforward process:
Information Required
The primary cardholder will generally need to provide the following information about the authorized user:
- Full name
- Date of birth
- Address
- Social Security number (sometimes required, but not always)
Removing Yourself as an Authorized User
If you decide that being an authorized user is no longer beneficial, you can request to be removed from the account. You can contact the primary cardholder to remove you from the account or contact the credit card issuer directly to request removal. You will typically have to send a written request.
Credit Score and Authorized User Status
How Authorized User Accounts Affect Credit Scores
Authorized user accounts can positively or negatively affect your credit score, depending on the primary cardholder’s behavior. Most scoring models include authorized user accounts when calculating credit scores.
- Experian, Equifax, and TransUnion typically include authorized user accounts.
- FICO and VantageScore consider the account history of authorized user accounts.
Monitoring Your Credit Report
It’s crucial to regularly monitor your credit report to track the impact of authorized user accounts. You can:
- Obtain a free credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) annually at AnnualCreditReport.com.
- Use a credit monitoring service to track changes to your credit score and report in real-time.
If you notice any inaccuracies or negative activity, contact the credit card issuer or the credit bureau to dispute the information.
Conclusion
Becoming an authorized user can be a strategic move to build or rebuild credit, but it’s essential to weigh the potential benefits against the risks. Choosing a responsible primary cardholder and regularly monitoring your credit report are crucial steps to ensure a positive outcome. By understanding the mechanics of authorized user status, you can leverage this tool to achieve your financial goals and improve your creditworthiness.