Improving your credit score can seem like a long and difficult process. But there’s a strategy that many people don’t know about: adding authorized users to a credit card account. When used the right way, it can boost credit scores for both the primary cardholder and the authorized user. In this article, you’ll learn what an authorized user is, the benefits and risks of this strategy, how to set it up correctly, and how to track your credit improvement.
What Is an Authorized User?
An authorized user is someone who is added to a credit card account by the primary account holder. The authorized user gets a card with their name on it and can make purchases, but they are not legally responsible for paying the bill. The primary cardholder remains responsible for all charges.
Being added as an authorized user allows the new user to benefit from the card’s history of on-time payments and low balances. This can improve that person’s credit score, especially if they have a limited or poor credit history.
Benefits of Adding an Authorized User
One of the biggest advantages of adding someone as an authorized user is a potential improvement in credit scores. Here’s how it works:
- Established Credit History: If the credit card has been open for a long time with a good payment record, the credit history is often added to the authorized user’s credit report.
- Lower Credit Utilization: If the card has a high credit limit but low balances, it lowers the credit use ratio, which helps improve scores.
- On-Time Payments: A history of paying the balance on time is one of the top factors in calculating credit scores.
For young adults or those trying to build or repair their credit, becoming an authorized user can be a smart first step.
Risks and Drawbacks
While this strategy comes with benefits, there are also potential downsides:
- Shared Responsibility: Even though authorized users aren’t legally responsible for debt, any spending they do could affect the account holder’s credit.
- Negative History: If the card has late payments or high balances, those also get transferred to the authorized user’s credit report and can hurt their score.
- Misuse of the Account: Poor communication between the account holder and the authorized user can lead to overspending and financial strain.
This is why it’s so important to have clear ground rules and to select the right credit card account to share.
Choosing the Right Card
Not all credit cards report authorized user activity to all three major credit bureaus (Experian, TransUnion, and Equifax). Before adding someone, make sure the card you select does share this data.
Look for a credit card that has:
- A long and positive history
- Low balances or a high credit limit
- On-time payment history
Also, decide if the authorized user will actually receive a physical card or if their name is simply added to help them build credit. In some cases, it’s safe to add someone without giving them access to spend.
Setting Rules and Guidelines
If you’re the primary cardholder, make sure you set boundaries about how the card can be used. Here are a few tips:
- Set Spending Limits: Some credit cards allow account holders to set individual spending limits for authorized users.
- Communicate Clearly: Talk about what the card should be used for and how it will be paid off.
- Monitor Usage: Keep an eye on account activity and make sure both parties are on the same page.
These steps help protect both the account holder’s and authorized user’s credit scores.
Tracking Credit Score Improvements
Once the authorized user is added, it can take 30 to 60 days for the credit report to update. After that, the user may start seeing an improvement in their credit score.
To track how the strategy is working, follow these steps:
- Check Credit Reports: Review credit reports from all three bureaus to see if the card shows up under the authorized user’s profile.
- Monitor Score Changes: Use free or subscription-based credit monitoring tools to watch the score over time.
- Look for Positive Changes: Things like increased length of credit history, reduced credit utilization, and a history of on-time payments are good signs the strategy is working.
If the authorized user doesn’t see any new information added, contact the credit card company to verify that they report authorized user data.
When to Remove an Authorized User
Sometimes, it might make sense to remove someone as an authorized user. This could happen if the relationship changes, if the user misuses the credit card, or if the account starts to show negative activity.
Removing an authorized user is usually simple. Just call the credit card issuer and ask to have the person removed. It normally takes a few days for this change to reflect, and it may impact the authorized user’s score if the account was a major part of their credit history.
Final Thoughts
Adding an authorized user can help build or repair someone’s credit score, but it’s important to do it wisely. Choose the right card, set clear rules, and monitor credit reports regularly. Both the cardholder and the authorized user should understand the benefits and dangers before starting. With the right approach, becoming or adding an authorized user can be a smart and effective way to improve financial health.
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