Being an authorized user can help a person build or rebuild credit when used responsibly over a longer period. But there may also be drawbacks.
As an account holder, it is your legal responsibility to pay off an authorized user’s debt if they miss payments or run up an excessive balance.
1. It can help you build credit
Authorized user status on a credit card can help build your credit, provided the primary cardholder manages it responsibly. Every time they make payments, your report gets updated and your scores may increase accordingly – however if they miss payments or use too much credit than intended, your scores could decline instead.
As such, it’s essential that only account you trust are added as authorized users on. Also ensure your chosen account reports directly to your credit score so you can take full advantage of establishing an excellent payment history and proper utilization.
Authorized user status has several benefits for maintaining an account when it would otherwise become inactive, helping to maintain your credit history – 15% of your score! – and thus maintain its value to you and improve your score in turn.
An authorized user should keep in mind that their primary cardholder will legally be responsible for paying off any balances accrued by authorized users, so it’s crucial that they select someone they trust to manage the account responsibly. Also, as an authorized user, being removed abruptly by the primary cardholder could cause severe harm to your credit score.
Are You Wanting to Help Others (Or Yourself) Build Credit? Consider giving someone (including yourself!) an Authorized User Card on Your Account so they can begin making payments and building their credit history. This may also help people who have experienced past financial issues such as missed payments or bankruptcy rebuild their history with credit. A credit card in their name makes getting approved for loans or other forms of credit easier – as long as debts are paid and account maintained in good standing.
2. It can help you avoid overspending
Building credit can take some time. But, if you want a faster or simpler option for getting someone on their path towards good financial health, adding them as an authorized user could be the perfect way to jump-start their journey with credit.
Credit card issuers generally allow primary account holders to set spending limits for authorized users, which can help reduce unnecessary strain on your overall credit limit and alert options that notify primary account holders if an authorized user makes purchases. Primary account holders can also set “guardrails” that limit authorized users so they learn how to use credit responsibly before striking out on their own.
But ultimately, the primary account holder remains solely accountable for their card. That means if delinquency occurs on their account, its entire balance must be paid in order for credit scores not to suffer as a result. If you suspect misuse from an authorized user on your card, make sure to closely monitor their spending and create a joint spending plan together.
One disadvantage to becoming an authorized user on a credit card is that its primary account holder can remove you at any time if you depend on it to build or rebuild your credit score.
Consequently, if the primary account holder decides that you’re no longer suitable to be an authorized user on their card, they can notify either their credit card company or log into their online account and take appropriate actions against you. This could be an inconvenience – particularly if they’ve made timely payments – but before making this decision yourself as an authorized user it is important to evaluate all pros and cons carefully as you’ll be responsible for managing this card – be sure to read its terms thoroughly as well as contact them for additional details before making your final decision.
3. It can help you avoid late fees
Being an authorized user on a credit card gives you access to its credit line, but ultimately it falls to the primary cardholder to pay their bill. Therefore, it is vitally important for both of you to work together on keeping balances low and credit utilization low; your timely payments can have an immense positive effect on both parties involved’s credit scores.
If the cardholder misses payments, however, this could have an adverse impact on both of your credit reports. As you are not legally responsible for their debt on the credit card account in question, it is essential that an authorized user choose someone with good financial habits and select one with an account with a strong history, high credit limit and plenty of spending capacity as their card.
Consider becoming an authorized user if you know someone with little or no credit and difficulty being approved for cards independently. Being an authorized user offers them an invaluable chance to build or rebuild their credit while sparing them from having to apply for cards directly, which usually necessitate a hard inquiry that damages their score.
An authorized user can be an effective way of teaching someone how to use plastic responsibly and even offer rewards as part of your account. As long as you carefully choose trustworthy individuals, adding an authorized user may help build credit and improve overall financial health.
Before adding an authorized user to a credit card account, it is essential that all factors associated with doing so are carefully assessed and considered before making decisions. Be sure to read WalletHub’s comprehensive overview on becoming an authorized user on a credit card account.
4. It can help you earn rewards
Many credit card issuers offer attractive perks for their cardholders, such as lounge access and rewards on purchases. By adding an authorized user to your credit card account, it may be easier for you to take advantage of those perks; just be sure that whoever you select as such is responsible when spending and pays their bills on time; otherwise you could find your report includes charges that do not belong to you!
Credit card companies report the behavior of primary cardholders to three major credit reporting agencies, which in turn can impact an authorized user’s credit score. Delay payments or high utilization can have detrimental effects. In addition, some card issuers may close an account if primary cardholder fails to repay debt on time or is in default.
Are You Building or Rebuilding Credit? The ideal strategy for those seeking to establish or rebuild their credit is becoming an authorized user on an existing card account that is managed responsibly, in order to avoid the negative repercussions of one missed payment on their score and learn how to handle plastic responsibly in an open environment.
As an authorized user, it’s key to work closely with the cardholder to establish a spending limit and plan. Alerts should also be set up so you can act immediately in cases of suspicious activity so as to prevent overspending. Finally, regular meetings are essential in terms of open communication to discuss how well the account is being managed and whether any modifications need to be made.
Substituting an authorized user as your main card holder can be an invaluable way to build or rebuild your credit history and earn rewards. It can also provide relief for those who struggle to qualify on their own or don’t have sufficient income available for more debt.