Becoming an authorized user on a credit account can help you build credit.
It’s a relatively quick and easy way to help establish credit or improve one’s score.
In this article we’re going to take a deeper look into authorized users and the risks associated with them.
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What is an Authorized User?
An authorized user is an additional person listed on a credit card account that is authorized to use the account. The additional account owner will receive a credit card with their name that is linked to the account.
An authorized user is different than a co-signer. A co-signer on an account is legally responsible for the debt, authorized users are not.
Adding an Authorized User to Build Credit
When an authorized user is added to a credit card account, the entire account history will appear on the individuals credit report. Authorized user accounts are still a factor in the credit scoring algorithm used to determine your credit score by FICO.
If you are the account holder and are adding a friend or family member as an authorized user on your account. You do not need to give that person a card. In fact, it is recommended that you do not allow that person to actually use the account at all if you are doing it for credit purposes only.
Before being added to someones credit account you want to make sure the account is in good standing. If the account has any late payments or is over the limit then becoming an authorized user could actually worsen your credit situation.
What to Avoid
Do not give the authorized user a card – If the whole purpose of adding someone to your account is to build credit it doesn’t make sense to give them a card. That only creates a risk for you.
Authorized User Minimum Age Requirements
Adding your child as an authorized user on your credit accounts can be a great way to help your child build and learn about credit. The age at which you can add someone as a user varies depending on the creditor.
American Express and Discover allow you add an authorizer user as early as the age of 15. Other banks will usually range between 15-17 years old.
While being added as an authorized user on a credit account can have a positive impact on your overall credit profile. The impact of an authorized user account will not be significant. There are many other things you should be doing to build your credit.
Pay Your Bills on Time
Paying your bills on time is the most important factor in your credit score. Any late payments or collection accounts will really hurt your credit score.
If you have trouble remembering to pay your bills on time. You can set up auto payments with your bank or with your creditors directly. Set up an automatic monthly payment to pay at least the minimum amount due each month so you never forget to make a payment.
Keep Your Balances Low
Your credit utilization ratio is the amount of your credit card balances divided by the credit limit. The higher your balances are, the lower your score will be. Try to maintain a balance that is less than 15% of the credit limit on your cards.
Have a Mix of Credit Accounts
It’s important to have a healthy mix of different types of credit accounts. In fact it nmakes up 15% of your overall credit rating. It’s better to have an auto loan, one credit card, and a personal loan, instead of 3 credit cards.
Keep your Accounts Open
You may have heard that it is not good to close a credit card. That is because the average age of your credit accounts make up 10% of your credit score. If you have credit cards you do not use, try buying something small once a month and paying it off. This will keep active on the card so the creditor doesn’t close the account.
The Bottom Line…
Having someone you trust add you as an authorized user on their account is a quick way to beef up your credit score. However, be careful who you ask to add you. If the primary account holder misses any payments or carries a high balance it can also affect your credit score.
Make sure you are doing other things to help you build credit, being an authorized user is not enough.