If you’ve got a thin credit file or perhaps ran into some debt trouble earlier in your life, becoming an authorized user on an established credit account can have a net positive effect on your credit file.
You can benefit quite a bit if you become an authorized user on an account. It needs to be an account that a responsible user uses and pays off frequently.
However, there are other strategies that can go further when thinking about rebuilding damaged credit. Additionally, you won’t be responsible if the user fails to pay. However, that could put you in an awkward position.
Let’s take a look at a few of the benefits of becoming an authorized user. We will examine how it can help you and what you need to consider when becoming an authorized user.
What is an Authorized User?
An authorized user is someone who is legally permitted to make charges on a credit card account that is owned by another individual. That individual is also responsible for all of the charges made by authorized users. That remains the case regardless of amount or timing.
When the owner of a credit card makes you an authorized user on an account, they agree to be held responsible for charges made from their card. A card is sent to the authorized user. It generally has the same rights and purchasing power as the cardholder.
Does it have a Big Effect on my Credit Score?
Being an authorized user does have an effect on the credit score of both the main holder and the authorized user. As long as the account in question reports authorized users to credit bureaus, the authorized user will get the benefit.
How much is that benefit? The answer, really, is not that much. If you’ve got very bad credit, anything helps. If that is the case, becoming an authorized user is something positive to pursue.
However, authorized user status alone will not bring your credit score up quickly or easily. Since you’re not ultimately responsible for the payments, being an authorized user does not necessarily give creditors a good view into your habits.
What are Some of the Things Authorized Users Need to Look out For?
We’ve looked at things from the perspective of the authorized user. What about from the perspective of the main card holder?
If you’re adding an authorized user who connects to you financially, say a child or spouse, an authorized user status simply makes things easier. You can effectively make purchases and manage your financial life in one place.
If, however, you are adding an authorized user to help that individual improve their credit score, you may want to think carefully. The main card holder is responsible for any and all charges made by all the cards under the account.
Therefore, if you have a spoken word agreement with the authorized user that he or she will pay the charges, and they don’t, you will be responsible for it. Think carefully and critically about authorized users and ensure you fully communicate about intentions and expectations.
So is it Good or Bad?
Becoming an authorized user is best to do as part of a broader credit rehabilitation strategy. This includes paying any bills you have on time.
From mortgages to other credit cards, paying on time is the single best way to improve your credit score. Additionally, having accounts open for a long period of time is an essential way to ensure that your score stays on the positive end of things.
Finally, keep your balances low. A lower credit utilization ratio — the amount you currently owe as compared to the amount of credit to which you have access — means a more positive view on your credit report and score.
If you have very damaged credit or no credit at all and want to work towards a good credit score, consider a secured credit card. You can open these cards with a deposit which you borrow against. This shows that you can control your spending and are able to manage your finances.
It’s important to remember that there is no silver bullet when it comes to credit rehabilitation. Information and research are two of the most powerful weapons in your arsenal. Many credit card companies now offer free credit reports and scores. Check them often and ensure that you’re still heading in a positive direction.
Becoming an authorized user on an established account is one way to begin to improve your score. However, it has to be part of a broader push to make your credit report and score attractive to lenders.