In the world of credit, one often-overlooked strategy for building or improving your score involves becoming an authorized user on someone else’s credit card account. This arrangement allows individuals to benefit from the credit history of the primary account holder without assuming any responsibility for payments. But while the idea sounds straightforward, it’s essential to fully understand how it works, its potential benefits, and the risks involved.
For those looking to improve their credit score or build credit from scratch, the option of becoming an authorized user is a powerful tool—one that is increasingly used by parents helping their children establish credit or by individuals seeking a boost in their financial standing. Here’s everything you need to know about becoming an authorized user, how it works, and how it can impact your financial future.
What is an Authorized User?
An authorized user is someone who is added to another person’s credit card account, typically a parent, spouse, or trusted friend. This individual is allowed to make purchases on the card, but unlike joint account holders, they are not responsible for repaying the debt. The key advantage of this arrangement is that the authorized user can benefit from the credit card’s history, including its payment behavior and credit utilization rate, which are factors that contribute to a credit score.
For example, if a parent with a well-established credit history adds their child as an authorized user, the child’s credit report will reflect the parent’s positive payment habits, potentially helping the child establish or improve their credit score. However, the child is not legally obligated to make any payments or carry debt on the card.
How Does Being an Authorized User Work?
Once an authorized user is added to a credit card account, they receive their own card linked to the primary account. While they can make purchases, the primary cardholder remains fully responsible for paying the bill. Here’s a breakdown of how it functions:
- Access to Credit: The authorized user is given the ability to make purchases with the card, but their access is limited to what the primary cardholder allows. The user typically has no say in the management of the account, including the payment amount or terms.
- No Liability for Debt: Crucially, the authorized user has no legal responsibility for repaying the balance. If the primary account holder fails to make payments or accumulates debt, the authorized user’s credit score will be impacted—positively or negatively—based on how the account is managed, but the user will not be financially liable for the debt itself.
- Credit Reporting: Most major credit card issuers report the account’s activity to the credit bureaus, which means the payment history is reflected on the authorized user’s credit report. If the primary cardholder maintains a low balance, makes on-time payments, and uses credit responsibly, the authorized user’s credit report will show this positive activity, which can help boost their credit score.
- Credit Score Impact: Being added as an authorized user can have a noticeable effect on an individual’s credit score, especially for those with little to no credit history. As the authorized user, you benefit from the positive payment history of the primary account holder. However, if the primary cardholder carries high balances, misses payments, or has poor credit habits, these behaviors could negatively affect the authorized user’s score as well.
Who Should Consider Becoming an Authorized User?
While becoming an authorized user can be a powerful tool, it’s not the right strategy for everyone. It is particularly useful in the following scenarios:
- Young Adults or Children: Parents often add their children as authorized users to help them establish credit before they are old enough to apply for their own cards. This can be an important first step in helping a child build a strong credit history, which is essential for securing favorable loans, mortgages, and other financial products in the future.
- Spouses or Partners: In married couples or partnerships, one person may add the other as an authorized user to strengthen their credit profile, particularly if one partner has a stronger credit history.
- Individuals with No Credit History: For those starting from scratch, becoming an authorized user is one way to establish a credit history without having to apply for a credit card on their own, which can be difficult if they have no existing credit.
- People Looking to Improve Their Credit Score: If your credit is less-than-ideal, being added to a well-managed credit card can help boost your score by reflecting positive account activity.
The Benefits of Being an Authorized User
- Credit Score Boost: One of the primary reasons people choose to become an authorized user is the potential boost to their credit score. If the primary cardholder maintains a solid payment history and a low credit utilization rate, these positive behaviors will reflect well on the authorized user’s credit report, helping them build or improve their score.
- No Responsibility for Debt: Unlike joint credit card holders, authorized users have no legal responsibility for the debt. The primary account holder remains responsible for paying the bill, which means there’s little risk of the authorized user accumulating unwanted debt.
- Easy Way to Build Credit: For individuals with little to no credit history, being added as an authorized user is an easy way to establish credit. By benefiting from the primary cardholder’s good credit management, the authorized user can start building their own credit history without needing to apply for a credit card.
- Potential Access to Rewards: Some credit cards offer significant rewards for purchases, such as cash back, travel points, or miles. Authorized users often have access to these rewards, which can be a valuable perk if the primary cardholder has a rewards-based credit card.
The Risks and Drawbacks
- Dependency on the Primary Cardholder: The authorized user’s credit score is tied to the actions of the primary cardholder. If the primary cardholder fails to make timely payments or carries high balances, it could negatively impact the authorized user’s credit score, even though they’re not responsible for the debt.
- Limited Control: Authorized users have no control over how the account is managed. The primary account holder can make decisions about the card’s usage, including limiting or terminating access to the card at any time. This means that the authorized user could lose their access unexpectedly.
- Relationship Strain: In some cases, the relationship between the primary cardholder and the authorized user could be strained if there are disagreements over spending or responsibility. For example, if the authorized user is seen as overspending or mismanaging the credit, it could cause tension in the relationship.
- Impact on the Primary Account Holder’s Credit: If an authorized user racks up debt or mismanages the account, it could affect the credit score of the primary cardholder. In particular, high balances and late payments can increase credit utilization and cause financial strain for both parties.
How to Add an Authorized User
Adding an authorized user is a relatively simple process. Typically, the primary cardholder can add someone to their account by providing the authorized user’s personal information, including their full name, date of birth, and possibly their Social Security number. This can be done either online through the credit card issuer’s website or by contacting customer service.
Once added, the authorized user will receive a card in their name, but it’s important to note that the primary account holder will still be responsible for any charges made on the account.
Can You Remove an Authorized User?
Yes, the primary account holder has the ability to remove an authorized user at any time. If the relationship sours or if the primary cardholder feels that the authorized user is mismanaging the account, they can remove the user without their consent. This will immediately revoke the authorized user’s access to the card, and their credit report will no longer reflect the account activity.
However, removing an authorized user may have an impact on their credit score, particularly if the account was playing a significant role in helping them build credit.
Conclusion: A Powerful but Complex Tool
Being added as an authorized user is a simple way to build credit, but it’s not without its complexities. It can be a powerful tool for those looking to establish a credit history or boost their credit score, but it requires trust, communication, and responsibility between the primary account holder and the authorized user. For those considering this option, it’s important to understand the potential benefits and risks, and to weigh them carefully before making a decision. Whether you’re a parent trying to help your child or an individual looking to improve your financial standing, becoming an authorized user can be a significant step toward achieving your credit goals—if done responsibly.