If you or someone you know is on a credit repair journey, becoming an authorized user is probably a topic that has been top of mind.
Becoming an authorized user is a common way to improve your credit file because it gives you access to a credit line without having to qualify for it yourself. This allows you to piggyback off of the primary account holder’s good credit as a way to boost your overall credit score.
However, there are certain risks to consider about authorizing users on a credit card. Both the authorized user and the primary cardholder are putting their credit score in the hands of the other. If either person makes late payments or overspends on the credit card, both credit histories could be impacted as a result.
Authorized usership is a great credit-building tool that should be carefully considered before going through with it. If you are considering authorizing a friend or family member as an authorized user, read our full breakdown of the risks, benefits, and considerations of becoming an authorized user.
What is an Authorized User?
An authorized user is a person who is recognized by the credit card company as someone who can make purchases on another person’s credit card account. They are given a secured credit card and are able to spend on that card at their own discretion.
The main benefit is that these users are able to use the account as a means to build up their own credit history.
Making on-time payments is a huge component of one’s credit score. If someone has a history of making late payments on accounts or overspending, accessing someone else’s account as an authorized user can help them repair their credit history over time.
On the other hand, an authorized user opens up the primary account holder to the risk of having someone misuse their credit card.
Authorized users are not legally liable for repaying the account balance – even if they make purchases on it. This means if they bring their bad habits to the primary’s account, the account holder could be putting their own credit and financial well-being in jeopardy.
How is an Authorized User Different from a Joint Cardholder?
Authorized users and joint cardholders share many similarities.
- They both have cards linked to a single account that they share with another person.
- Both can see an impact on their credit report from credit missteps on the account.
The main difference between the two is that a joint cardholder shares responsibility for repaying the account balance whereas the authorized user does not.
When two people decide to open a joint credit card account, they must enter into the application process together.
The credit card issuer considers both people’s credit histories and backgrounds when determining whether to authorize the account.
Joint account holders will also share legal accountability for managing the card and paying the balance.
Authorized users, on the other hand, have all the spending privileges of a primary cardholder (assuming the account holder doesn’t set spending limits), but they don’t need to undergo a credit check or application process.
The most popular reason for adding an individual to your account is to help them improve their credit. Therefore, people who would like to avoid a hard credit inquiry will prefer becoming an authorized user to a joint cardholder.
The credit card company will not request a copy of the applicant’s credit report in order to add them to the account. An authorized user account can be added at any time by the primary account holder by simply contacting the issuer.
While an authorized user is not held legally liable for their portion of the balance, there is usually an understanding between cardholders that they are responsible for their share of the balance.
Authorized users should consider the relationship between them and the primary cardholder when using the credit card and make responsible decisions concerning the account.
Who is Allowed to Be an Authorized User?
Legally speaking, there are no age restrictions to adding an authorized user to your account. But the credit card issuer may have rules regarding who is allowed to be added as an authorized user on the account.
Typically, people will add someone who is close to them as an authorized user on their account. This can include:
A common example is adding a child or teenager to help build their credit history and teach them credit card responsibility.
Besides choosing your authorized user carefully, you should discuss reimbursement and spending power.
Be sure to openly discuss what the credit card may be used for and how you expect the user to pay you back. Many credit cards allow you to set spending limits on authorized users, which can help control teens or over-spenders from getting too crazy.
Taking on an authorized user on your account is a big deal. It requires mutual trust and a clear understanding of the purpose of such an arrangement. If they make any mistakes, it will be on you to clean up after them. That is why you should clarify the expectations of their being added to your account.
Does Being an Authorized User Affect Your Credit?
Being an authorized user can affect your credit score positively, negatively, or not at all. It all depends on two factors: the credit habits of the account’s users and whether the card issuer reports the account to credit bureaus.
An authorized user’s credit can only be affected by the shared account if the credit card company reports the account back to the major three credit bureaus (TransUnion, Equifax, and Experian.)
If the lender does report the account to the credit bureaus, then you will see the impact show up in your credit report.
Whether the account has a good or bad impact on your credit depends on the account activity. If you and the primary account owner pay bills on time and maintain a low credit utilization rate, you will both see this reflected positively on your credit reports.
However, if either person mismanages the account, both credit scores will suffer.
Can You Build Credit as an Authorized User?
One of the main reasons people are added as authorized users is to build good credit. However, this all depends on the credit habits that the primary account holder and the authorized user bring to the account.
Credit scoring models take a number of different things into account when rating a person’s overall credit. Making on-time payments, having a low credit utilization ratio, and having a high average age of accounts are all factors that show creditworthiness.
But what does this mean in terms of a credit card? In order to improve your credit, you should:
- Pay the credit card balance on time each month.
- Spend well below the credit limit.
- Be mindful of available credit.
- Maintain the account for several years.
If you are doing these things as an authorized user, congratulations! You’re well on your way to boosting your credit score. However, if the primary on the account is neglecting responsible credit habits, you may want to remove yourself from the account.
If you decide that you would like to be removed from the account, you simply need to contact the credit card company and request to be removed.
The credit card issuer will be able to tell you if the account will be removed from your credit report as a result. If the account doesn’t automatically disappear from your credit report, you can contact the major credit bureaus to request that the authorized user account be removed.
How to Add an Authorized User to Your Account
Now that you understand the risks and rewards associated with being an authorized user, it’s time to get you set up on an account.
Adding an authorized user to a credit card account is much simpler than creating a joint account.
Call the Credit Card Company or Go Online
The primary account holder just needs to call the credit card company – whether that’s American Express, Discover, Chase, or Visa – and request that an authorized user be added to the account.
Some credit card companies may even allow you to do this through your online account.
Provide Authorized User Information
Every credit card company will have different requirements regarding what information is required.
This may include name, birthdate, address, or social security number. Because of this, it is sometimes easier to contact the credit card company with them so they can provide this information.
Set Spending Limits
Spending limits are often a big consideration for people adding an authorized user to their credit card account. If you would like to set up spending limits, you can inquire about this when you set up the account.
Credit Card Issued
Once the account is in place, the credit card issuer will send out an authorized credit card to the new user, as long as they meet the minimum age requirement. Once the authorized user receives their credit card, they will need to activate the card before they can use it. From there, they are free to spend on the card at their own discretion.
It’s just as easy to remove an authorized user as it is to add one. In order to remove them, the primary cardholder can contact the credit card company and request the change. They can also request that they receive a new card to ensure the account information is updated.
When is it Time to Go from Authorized User to Cardholder?
Being an authorized user is a great way to learn more about personal finance, build your FICO score, improve your payment history, and more. But sooner or later, it’s time to file for a line of credit of your own.
Having a credit card of your own is an excellent way to build your credit history.
Many authorized users apply for their own credit card within one to two years. This gives credit bureaus enough time to adjust your credit score based on the impact of the account and the good habits reflected by it.
Being added to an account is a good starting point for many people, but eventually, the primary cardholder will discuss removing you from their account, which will likely cause your average age of accounts to drop.
Length of credit history makes up 15% of your FICO score, which is why you will need to secure an independent line of credit that can age with you.
Should You Become an Authorized User?
Authorized user status is a significant step for any relationship, so it’s important to discuss the possible pitfalls and risks associated with this type of financial step. When done correctly, it is a great way for you to improve your credit and learn important financial habits.