What You Need to Know About Adding an Authorized User to Your Credit Card
From Bankrupt to an Excellent Credit Rating
I have benefited greatly from being an authorized user on several of my husband’s accounts. That is because I had to file bankruptcy two years before we were married and before we even knew each other. With a bankruptcy on my credit file for 10 years, I didn’t even attempt to get credit on my own for many years.
Thanks to his excellent credit and my determination to learn from my financial mistakes and never be in that position again, my credit score has gone from low immediately after filing to excellent today. You can see from the picture that I have an individual credit score of 830! The accounts in which I was an authorized user did report to the credit bureaus, something that increased my own credit standing.
I finally applied for my first individual account in 2014, almost six years after my bankruptcy. A department store approved me for a small limit. Today my bankruptcy has fallen off my credit report and I have no trouble getting credit on my own. In fact, I have been a co-signer for my daughter twice. I share this background information to explain why this topic is important to me. I hope the research I completed some time back will be helpful to you, and I would like to give you hope that even the worst financial situation can improve.
What Is an Authorized User?
An authorized user on a credit card is someone who can make charges on an account but has no legal obligation for repaying them. That responsibility lies with the primary card holder alone. The authorized user receives a credit card in his or her own name and can typically charge up to the limit on the account.
Adding a college-aged child with no previous credit history or a spouse whose credit score is too low to get an account in his or her own name are two examples of when you might want to add an authorized user to your account. Another is adding an employee who may need to make occasional purchases on your behalf.
Do Authorized Users Build Credit?
In most cases, the answer is to this question is yes. Although most credit card issuers report payment history on both parties, some treat the authorized user differently for reporting purposes. That means they have discontinued the practice of allowing piggybacking credit where one person can profit from the good credit of someone else.
If you’re trying to help a family member establish good credit that he or she would be unable to earn independently, check with the card issuer about their authorized user credit report practices. By consistently making timely payments, you help to create a favorable credit rating for both of you.
It’s important to keep in mind that any misuse of the credit card by your authorized user will reflect poorly on your credit history. Make sure that you have established trust with this person and that he or she understands the responsibilities the arrangement places on both of you.
The Impact Adding an Authorized User Has on Your Credit Score
People considering adding an authorized user obviously need know how this affects them as the primary account holder. Besides the obvious legal obligation to repay the debt, the purchases that both you and your authorized user make affect your credit utilization ratio. This makes up 30 percent of your overall score. Credit utilization compares the amount of credit you have available to the amount that you use each month.
Another potential downside to piggybacking credit is that the authorized user may charge so much that you’re unable to keep up with even the minimum payments. Late payments or paying less than the minimum due starts showing up in your credit file after 30 days. At 35 percent, your payment history has an even greater impact on your overall credit score than your credit utilization ratio. Credit utilization and payment history affect the authorized user credit report as well if the credit issuer treats both parties the same.
Removing an Authorized User
When you have a joint account with someone, you can’t just have them removed from it. You would have to close the account and both of you re-apply for a separate credit card if you still desired to have one. With an authorized user, you can request to have him or her removed at any time. It’s good to know this if the person proves to be irresponsible with your credit or you only agreed to add him or her as an authorized user for a set amount of time.
If you decide to open a joint account with someone rather than add them as an authorized user, keep in mind they have the following rights to the account:
- Dispute charges
- Request a credit line increase
- Transfer balances
- Close the account
Whichever option you choose, it’s a good idea to request a free annual copy of your credit report to ensure the credit issuer is reporting the account as you expected.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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© 2019 Lisa Kroulik