Pros and Cons of Having An Authorized User
- An authorized user is an additional cardholder on another person's credit card account.
- Becoming an authorized user can help establish or increase your credit score.
- The primary cardholder assumes all the risk, so it’s essential to have an authorized user that is financially responsible.
According to the VantageScore credit score range, a good credit score is between 661 and 780. This range of numbers can help you to have favorable financial results, like better insurance rates when shopping for a car and lower interest rates on credit cards.
If you are looking for ways to boost your credit score, being added as an authorized user can help you build your credit over time.
What is an Authorized User?
An authorized user is an additional cardholder on another person's credit card account. Becoming an authorized user can help establish or increase your credit score. It’s essential to have an authorized user that is financially responsible because the primary cardholder assumes all the risk.
As an authorized user, you can benefit from the primary cardholder if they have good (661-780) or excellent credit (781-850). An authorized user must share their personal information, such as their legal name, address, social security number, and date of birth, with the issuing credit card company. This information is vital for credit card companies because it will allow them to send the authorized user's information to the national credit bureaus. Ideally, the account should be of a trusted family member or close friend.
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An authorized user will be given a personalized credit card with their name on it. Furthermore, an authorized user has access to a credit line to make purchases without the legal responsibility of making payments each month.
Co-signer vs. Authorized User
A co-signer, unlike an authorized user, cannot make purchases. In addition, a co-signer is financially responsible for the debt owed by the primary account holder if the primary account holder cannot pay back its debts. However, an authorized user is not financially responsible for paying back debt on the primary account holder's credit card account.
Authorized users can have their credit cards, whereas co-signers do not. The main difference between a co-signer and an authorized user is the legal obligation to repay the debt if the primary accountholder fails to make the required payment.
Pros and Cons of Being An Authorized User
Once your request to become an authorized user has been processed and reported to the credit bureaus, you should see the primary cardholder's credit history on your credit report between 30-45 days. Only then after will you be able to reap the benefits similar to the primary cardholder.
Pros of being an authorized user include:
- Establish and increase your credit score
- Earn credit card rewards points (typically, the primary account holder only has access to the reward points)
- Keep your credit card account active
- Share one credit card account (i.e., married couples or parents with teenage or adult children)
Cons of being an authorized user include:
- The primary account holder is responsible for all payments
- Both account holders risk ruining their credit score if credit cards are misused
- Destroy lifelong relationships if the authorized user is irresponsible with finances
- The primary account holder can remove an authorized user at any time
Parents typically add children as authorized users to teach them how to become financially responsible. By the time they reach the age of 18, they will have good credit history and can purchase things independently without a co-signer.
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How It Affects Your Credit
FICO scores are calculated using various credit information from your credit report. The categories that are considered when calculating are payment history (35%), the amount owed (30%), credit history length (15%), new credit (10%), and credit mix (10%).
Becoming an authorized user is one way to establish a credit score without prior credit history or income. Payment history and amount owed are two essential credit scoring factors. If the primary account holder keeps the credit card active by making payments on time, your score will increase. Credit merchants must also report a positive history; the longer you stay on the account, the better.
As the primary account holder, adding an authorized user does not affect your credit score unless the authorized user refuses to pay off their purchases on time.
What to Consider Before Choosing An Authorized User
As the primary account holder, you can help establish rules and boundaries that your authorized user should abide by. You should understand their spending habits before adding them as an authorized user.
A few rules that can help you both to stay on the same page include:
- Asking them to stay within a certain amount or utilization rate.
- Set text notifications to alert you when the authorized user has made a purchase.
- Write a basic contract outlining your expectations.
If the authorized user fails to comply with your wishes at any given time, you should remove them immediately.
It is vital to communicate as often as possible about your account. The more you talk about it, the easier the conversations will be. In addition, the primary account holder and the authorized user should be on the same page about managing the account.
Roles As An Authorized User
Consider being an authorized user as a temporary means of improving yourself and your credit score. The goal of an authorized user is to build up enough credit and financial responsibility to qualify for a line of credit of your own.
Different card merchants allow authorized users to have different roles. For some, being an authorized user opens you up to having limited access to the cardholder's account. Aside from making purchases, an authorized user can:
- Initiate cash advances
- Report lost or stolen cards
- Request additional cards
- Request statements
- Inquire about payment amounts and due dates
- Make payments on the account
An authorized user can't request the cardholder's personal information, increase credit limits, redeem rewards, inquire about rates, or close the account.
How To Remove An Authorized User
The primary cardholder can remove you as an authorized user. An authorized user can also remove themself. Before being removed, the primary cardholder should check with the card company to see if their history will still appear on your credit report or if it will be removed entirely once you are removed from the account. If their payment history will be erased from yours, it is best to remain on the account as long as there is a positive history.
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The Money Wrap-Up
As a primary account holder, you must trust the person you plan on adding to your credit card account. If you add an authorized user who is financially unreliable when it comes to paying back their debt, then it’s highly likely that they will dig you into debt too. Being an authorized user demands financial responsibility. So it’s important that any authorized user practice financial responsibility and maintain good money habits.