Kristy's Blog

Just the other day I was talking to a friend of mine who had gone through a very messy divorce which ultimately caused her to file for bankruptcy. She lost everything and was basically starting from square one when it came to credit and improving her credit score. She asked my advice on applying for a credit card with bad credit and steps to take to increase her FICO score. The first suggestion that came to mind was applying for a secured credit card but the downside of that is that all these types of cards do not offer a 3 bureau credit reporting – which does not help when you are trying to improve your credit score. So, I suggested becoming an authorized user on someone else’s credit card. To that suggestion came a blank look – she had no idea what an authorized user was. And, my friend did not fully understand how and if being an authorized user would affect a credit score and the positive and negative aspects of this type of credit rebuilding. I am sure my friend is not alone in understanding the nuances of the authorized users. So, let’s dive in to the definition of an authorized user and the positive and negative affects being an authorized user can have on one’s credit score.

What exactly is an authorized user?

An authorized user is someone who has their name on a credit card but they are not the primary credit card account holder. For example – you are a student going away to college and your parents give you a credit card to use for emergency expenses. The card has your name on it but it is your parent’s credit card account. Your parents are liable for the balance owed on the account and they are responsible for making timely payments. You, the authorized user, are only able to make purchases with the card.

The account holder is the only one who can add an authorized user and they are the one who can ask for credit limit increases, make payments, and remove authorized users. The most common authorized user relationships are:

• Parent & Child
• Employer & Employee
• Couples

Most credit card issuers will allow you to add an authorized user very easily – over the phone, online, or with a paper application. Generally, all that is needed is their name, date of birth, and in some cases, their Social Security number. This is different from a joint cardholder or a co-signer because the card issuer does not pull the credit history of the user – so no credit check is done.

Generally, after a few months of becoming an authorized user on an account, the history associated with that account will show up on the user’s credit reports. It is a good idea to check your credit reports to make sure and if it does not show up, the account holder should call the bank and request the history to be reported on the user’s credit file. When this account is added, it will then be considered in the scoring system and measured alongside the other current accounts. The only exception to this is the new version of FICO 8 – the benefit of being an authorized user will be reduced if FICO thinks you are being added to a stranger’s account simply to increase your score. Therefore, it is important to have some type of relationship with the person who’s account you are becoming an authorized user on.

How being an authorized user can positively affect your credit score.

Now that we understand WHAT an authorized user is, we can get into WHY someone would want to be an authorized user on an account. The most common reason is to improve one’s credit score and build up their credit history. If you are trying to get into the fair to good credit score range, the two most important areas to focus on are payment history and amounts owed – which makes up 65 percent of your FICO score. That means, you want to become an authorized user on an account which has a stellar payment history and is not maxed out or close to it.

So, let me get back to my friend – I suggested she ask her parents (who are retired and living comfortably) to become an authorized user on one of their credit card accounts. One they have had for a while, with an excellent payment history, and a low balance owed. This type of account should boost up her credit score with these good aspects.

Keep in mind there are many credit scoring models used by lenders to evaluate everything from car loans to mortgages. And not all consider authorized users the same way. So, the best rule of thumb to follow if you want to increase your score, is to find an account that has a good payment history, low balance, and has been open for good length of time. After a few months of becoming an authorized user on this account, check your credit scores to see if this account has positively affected your credit score.

How being an authorized user can negatively affect your credit score.

There is also a dark side to becoming an authorized user and circumstances where it can negatively affect your credit score. The best way to explore this is by way of example. Let’s say my friend goes to her brother and becomes an authorized user on one of his credit cards. Everything is going good for the first year but then her brother starts overspending and maxes out the credit card and then cannot afford to make the monthly payments. So, not only are there late payments on this account, but the credit utilization is at 100 percent. At no fault of my friend, her dream of an improving credit score just went down the drain.

Being an authorized user on an account where the primary account holder is not making payments on time or maxed out the card, can negatively affect your credit score. The best advice when this happens is to have your name removed from the account by the account holder immediately. If the damage to your credit is not too terrible, you can apply for your own credit card. Or, you might be forced into having to get a credit card with bad credit – like a secured credit card.

This type of unique financial relationship has its pros and cons when rebuilding credit history and improving credit scores. It offers someone who is trying to increase their score a way to piggyback a good trade line on to their own credit reports. As with anything having to do with credit repair, make sure you understand how becoming an authorized user on someone’s credit card account can help or hurt your credit score. Make sure to have an open dialogue with the primary card holder regarding the arrangement and always have an exit strategy if it all goes south.