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Having a good credit score is essential for getting through many financial stages in life: it can help get a low interest rate on a mortgage for the home of your dreams, or allow you to purchase a credit card. trip that gives you enough rewards to cover a flight for the vacation you wanted to take.
Getting a good credit score is hard work and if you are a young person with little or no credit history or someone who has been behind on debt payments in the past, getting a good credit score. to reach these financial milestones can be even more difficult. Becoming an authorized user on a credit card is one way to improve your credit history without having to pay monthly payments.
First, an authorized user can make purchases on a primary cardholder’s account, but is not responsible for paying the card balance. Authorized users do not have the same capabilities as a primary cardholder, so they will not be able to increase the credit line, add other authorized users, or redeem rewards.
How Being an Authorized User Can Influence Your Credit Score
An authorized user can rely on the good credit history of the primary cardholder. If the primary cardholder has a long history of making payments on time and in full, the authorized user should see this positive history reflected on their own credit report. According to a 2018 study by Credit Sesame, people with fair credit scores saw their credit scores improve by almost 11% just three months after becoming an authorized user on someone’s credit card. a.
However, not all credit card issuers report authorized user accounts to credit bureaus – Experian, TransUnion, or Equifax – so you should check with your card issuer.
The different credit scoring models, FICO and VantageScore, differ in how they assess an authorized user’s information, says Rod Griffin, senior director of public education and advocacy for Experian.
Authorized user status on cards is often used by parents for their children. By making your child an authorized user on your credit card, you can jumpstart their credit history. Additionally, extending your line of credit for an authorized user may lower your credit utilization rate, which may increase your credit score.
How much influence a primary cardholder’s credit history has on the authorized user’s credit history depends on a variety of factors, says Matt Schulz, chief credit analyst at Lending Tree.
Schulz notes that if you are young and have little or no credit history, being an authorized user can have a big effect on your credit score, as it will be the foundation of your credit history. However, if you have a bad credit history, being an authorized user on someone’s credit card will have less of an effect because you already have a long credit history.
Mackenzie Stewart, personal finance blogger at Life @ 23k, was an authorized user on both parents’ credit cards. She saw her mother’s credit history show up on her credit report as a teenager, noting that her credit score was around 550 despite having no credit history.
“My mom had decided to put me on one of her cards to start building my credit history,” Stewart said. “It was still the skin in the game that [allowed me to] have access to things that I didn’t have [access to] before.”
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The risks of being an authorized user
However, if you become an authorized user on someone else’s credit card or plan to add someone as an authorized user, you should be aware that some credit bureaus include negative payment history. primary cardholder and the credit usage rate on the authorized user’s credit report.
“Experian does not include a negative payment history on an authorized user’s credit report, but a high usage rate on the account could potentially hurt scores,” Griffin said.
Stewart saw both the negative and positive effects of being an authorized user on his parents’ credit card accounts. When she was an authorized user of her father’s CareCredit card, a card used to pay for medical treatments and procedures, she saw frequent fluctuations in her credit rating. When his father increased or decreased the line of credit on his card, his credit utilization rate fluctuated, as did his.
While parents may act with good intentions by making their children authorized users of their card, the spending behavior of parents and child could negatively affect both of their credit scores.
According to Schulz, making someone an authorized user on a credit card doesn’t mean you have to give the user the credit card.
“If you make someone an authorized user on a credit card account. You don’t have to give them access to the card. Many parents will add their children to the account and never give the card to their children. and will never tell them they’ve been added, ”Schulz said.“ So that’s a way to give your child a boost without the added pressure of seeing all that extra credit and wanting to splurge on. expenses. “
Schulz also notes that when primary cardholders remove an authorized user from their card, the primary cardholder’s credit history will no longer influence the authorized user’s credit history. This means that you can erase both bad credit history and positive credit history on an authorized user’s credit report by deleting them.
Before adding someone as an authorized user on a credit card, you need to determine whether your payment history will reflect positively or negatively on an authorized user’s credit report. Being aware of your own debt repayment habits and the spending habits of your Authorized User will go a long way in ensuring that you are helping (and at the very least, not hurting) each other’s credit scores.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.