Do Authorized Users Build Credit? Know the Pros and Cons
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Becoming an authorized user on someone else’s credit card account is a strategy for improving credit quickly. It works best if the primary user's card has a long record of on-time payments and a high credit limit and the authorized user doesn't have recent blemishes on their credit report.
What is an authorized user on a credit card?
An authorized user is someone who is added to a primary cardholder's credit card account. Even though the credit card company will issue a card with the authorized user's name on it, the primary user is legally responsible for paying charges on the account.
Authorized and primary users should agree ahead of time whether the authorized user will be allowed to use the card or simply be listed as an authorized user. The effect on the authorized user's credit is the same either way. If the authorized user is using the card, the two parties should also agree on how payments will be made.
How does being an authorized user affect your credit?
Being an authorized user could help your credit, hurt it or have no effect at all. Before becoming an authorized user, ask the account’s primary user to make sure their lender reports authorized user activity to the credit bureaus. If the tradeline, or credit account, doesn’t show up on the authorized user’s credit report, it might be because the lender doesn’t report that information.
Here are some pros and cons to consider:
How being an authorized user can help you build credit
Authorized user status can be beneficial for several reasons. It can:
Decrease your credit utilization to help build your credit score. Authorized users can lower their credit utilization, or the percentage of their credit limits in use, by getting access to more available credit. Credit utilization is a major credit scoring factor — only payment history has more influence on credit scores. But how exactly does it work? Let's say you have a single card with a credit limit of $1,000 and your balance owed is $300. You're using 30% of your credit limits. If someone adds you as an authorized user to their lightly used card with a $15,000 limit, your overall utilization could fall dramatically. The result is likely to be good for your credit score.
Allow you to get credit without a credit check. To become an authorized user, only basic personal information is needed — things like your name, address, birthdate and Social Security number. This lowers the barrier of entry to credit for authorized users and speeds up the process.
Help children establish credit. Before children are eligible to apply for a credit card on their own, parents may be able to add them as authorized users to help establish their credit at a young age. Then, when they're eligible to apply for their own, they'll have a strong foundation to build upon. Some lenders have age requirement minimums for authorized users and won't report to the credit bureaus unless the user meets that threshold. Call the issuer to check its age requirements.
Primary cardholders can also benefit from the authorized user relationship. Credit scores are calculated using several factors, including credit age, or the average age of all your credit accounts. Instead of closing older accounts that aren’t used much, which could harm scores, primary users can add an authorized user to keep it active.
How being an authorized user could hurt your credit
Primary users are legally responsible for paying off the credit card balance, including expenses incurred by an authorized user. If the primary user misses a payment, it could significantly lower your credit score as well as theirs. Missed payments will also appear on your credit reports.
Likewise, your scores can suffer if either of you uses too much of the account’s credit limit. Setting the ground rules early is the key to success. For extra protection, primary users can set spending limits for authorized users on some credit cards.
Lenders checking your credit history want to see that you've managed your own credit accounts responsibly. Ultimately, being the primary account holder on a credit account will have a bigger impact on your credit score than being an authorized user.
Who benefits from becoming an authorized user?
If you're just starting out and have a thin credit file, becoming an authorized user is likely to benefit you more in terms of payment history than it would if you've been using credit longer and have setbacks to overcome. But lowering credit utilization can have a significant impact for newbies or rebuilders.
If you cannot qualify for a credit card on your own, being an authorized user can help you beef up your credit history and help with "credit age," a scoring factor. If you don't yet have a FICO score, the most commonly used scoring model, becoming an authorized user can shorten the time needed to generate one to less than six months. This status may also let you enjoy the convenience of having plastic in your wallet.
How fast does an authorized user build credit?
As long as the credit card issuer reports authorized user activity to the credit bureaus, the account will typically appear on your credit reports within a couple of months.
Other ways to build credit
While you're working to build your score, also consider the following options:
Apply for a secured credit card. You have to pay a deposit upfront if you're approved.
Explore alternative credit card options, which do not require deposits.
Apply for a credit-builder loan from your local credit union or companies like Self and Kikoff.
