I have been receiving a lot of emails from folks asking how authorizing another person (usually a friend or relative) on their credit card will affect both party’s credit score. Back in the day, becoming an authorized user on another person’s credit card was a great way to build your credit.
Things have changed in recent years and even though being an authorized user is a great tool for building credit, there are a few things that have changed.
Let’s get into the details of how you should use this credit-building tool to your advantage.
What Does Being an Authorized User Mean?
When you become an authorized user on another person’s credit card account, you’re issued a credit card in your name.
You’re able to use this credit card in the same way that the primary user uses it, however, you’re not legally obligated to pay the debt.
The primary user is responsible for paying the debt on the credit card. This also means that if you’re an authorized user and you use the credit card irresponsibly, the primary user is on the hook for it. I’ll get more into this later.
Generally, the reason why a person becomes an authorized user on another person’s credit card rather than just getting a credit card in their own name is that the person has poor credit and wouldn’t be approved.
Being an Authorized User to Help Build Credit
Several years ago it was a common credit repair practice to become an authorized user in order to rebuild your credit. However, the algorithm used to generate your FICO score no longer factors this into the equation.
In other words, being an authorized user is still a good tool for establishing your credit if you don’t have any credit history, but won’t really help you rebuild your score if you have poor credit due to negative entries.
The best way to improve your credit score if you have poor credit is to get a secured credit card and remove negative entries on your credit report.
I also want to note that being an authorized user isn’t going to have a huge impact on your credit score if you don’t have any prior credit history, but it will help, so why not take advantage of it?
Again, I suggest using the technique of becoming an authorized user as a tool for establishing good credit rather than rebuilding bad credit.
There is a big difference and many people make the mistake of thinking that they are going to improve their bad credit by becoming an authorized user on their spouse’s credit card. It simply won’t impact your bad credit.
Sign Up for a Joint Account Instead
While creditors may look more closely at a credit score when opening a joint account, setting up one of these accounts can be a much safer bet. Plus, both people will see the positive credit score gains!! And, since it’s a joint account, both people are responsible for the payment and both names are on the account.
Adding an Authorized User is Risky
Lastly, I want to give out a sincere word of caution of those who of you who are considering letting another person become an authorized user on your credit card.
I’ve been running this blog of over 10 years and I’ve literally received hundreds of emails from readers who tell me that they let a family member become an authorized user, the family member ran up the credit card bill and now they are on the hook for a bill they can’t afford.
You have to realize that there’s a real possibility that this will happen to you. I’m not saying your family member will intentionally harm you financially but this type of stuff happens all the time and you need to keep in mind the risk you are taking by allowing somebody to use credit in your name.
That said, if you truly want to help out a young family member, perhaps your college bound son or daughter, letting them become an authorized user on your credit card is a tool that will help them build some positive credit history.