One of the ways you can boost your credit score faster is for someone who has an excellent credit to add you as an authorized user to an account; you will get to inherit that account’s credit history (whether it’s good or bad). This method could improve your credit history dramatically if you have a limited credit history or no credit history at all.
This post aims to explain:
- How your credit score can be boosted by being an “an authorized user”
- The risks you face when you are added as an authorized user
- The steps required to become an authorized user
- How your credit score can benefit from being an authorized user
You can enjoy several benefits of being an authorized user thanks to an obscure regulation. Regulation B “requires that, when evaluating creditworthiness, lenders take a look at the account history of the account on which the applicant is an authorized user, when available if the authorized user’s spouse is one of the account holders. Because there’s no indication of whether an authorized user is a spouse, lenders tend to comply too much with these sets of requirements while considering all the accounts on which an applicant has been an authorized user when trying to assess creditworthiness.”
In simple terms, the moment you get added as an account’s authorized user (and the owner of the account isn’t important here), that account’s history will be visible on your credit report – and it will be addressed like it’s your credit history.
This can prove to be immensely beneficial if you get added to an account that has an excellent history. For instance, if a mother decides that she wants to add her daughter to a credit card that has remained open and in good standing for about 20 years, her daughter will get to enjoy the benefit of every of the 20 years of credit history.
A few things are worth remembering:
Not all credit card companies pay attention to reporting authorized users to the credit bureau. The big players in the credit card industry (Citibank, Bank of America, Capital One, Chase, and Discover) do report. Lots of smaller banks, as well as credit unions, do not. Be sure to check if your credit union or bank reports to the bureau. Here you can see a list of banks that do report authorized users to the credit bureau.
Some credit card companies place age restrictions on authorized users, whereas others don’t care about such restrictions in any way. Ensure that you ask your credit card company to be sure of who’s eligible. You can check out the age requirement of many major card companies here.
A 19-year-old who has a credit score of 820 is featured on Howard’s website (a specialist in personal finance), getting such a good credit score within a short time isn’t shrouded in mystery: he was added by his parents to a card that has a 17-year history of timely payments. The long history of timely payment was passed on to the 19-year-old, allowing him to achieve a superb score.
The Risk involved in being an Authorized User
There are some risks that the authorized user and the account holder need to take into consideration
The greatest risk, for the account owner, is the fact that the authorized owner can begin to spend on the credit card – and the account owner bears the responsibility for the debt. If you register a friend, daughter or son as an authorize user and then get a bill for a massive weekend in Vegas, you and not the authorized user will shoulder the responsibility of settling the debt. Tread with caution when handing plastic to anyone.
Any spending carried out by authorized users could also affect your credit score. For instance, if a given authorized user purchases an expensive item, the extra debt could have an impact on your credit score negatively – especially if it leads to increase in your total utilization.
Some credit card companies charge authorized users an annual fee. This seems to be a more common experience with rewards credit cards with additional perks and benefits.
The authorized user bears an entirely different risk. It feels so good to have another person’s history showing on your credit report – as long as the account stays in good standing. However, if the original owner of the account begins to perform poorly or is unable to keep up with payments; the authorized user’s credit history will take a hit. Before you choose to be made an authorized user, ensure that the person adding you to his/her account is someone you know and trust so well.
The Steps to Become an Authorized User
It’s easy to add an authorized user. For most of the big credit card issuers, you can set it up hassle-free online. But most credit card companies are happy to provide you with phone support if you encounter any difficulties. Card holders who register authorized users will likely have good activity on their account – so credit card issuers are more than happy to be of help.
You need to submit the address, name, date of birth and (as applicable to some card issuers) the authorized user’s social security number.