Does An Authorized User Affect Credit Score?

Is Being an Authorized User Beneficial for Credit Rating?

If you do not have a credit history or do not have enough credit history, being on somebody else’s credit card as an authorized user is the best way to build a credit history. But, on the other hand, being an AU is not without its risks either. Here is what you should know concerning the effects of being added as an authorized user of the credit card.

What is an authorized user?

An authorized user is therefore an individual who has a right to transact using a credit card account yet is not legally liable for the account debts. The first cardholder permits another person often a relative or a spouse to have a card associated with their account.

The authorized user receives a card that is personalized with his/her name and can spend money within the credit limit. However, the primary cardholder shall be held responsible for the payment of the credit card bill.

An authorized user status enables an individual to enjoy the positive credit of the primary user. Unfortunately, it has a reverse effect also – if the primary cardholder makes a mess of the credit card, then it will be equally detrimental to your credit score through your connection with the account.

The Impact of Authorized User Status on Your Credit

Once you become an authorized user, all the credit history from the credit card account is reported in your credit reports. This is especially so if you have only been an authorized user for some time now. In other words, whatever account history you present, whether it is a positive or negative one, forms credit history.

A few key ways are being an authorized user can impact your credit score.

Credit History – If you got your first credit card account with a good credit history, then it will not take long before you start building your credit if you previously had no credit accounts at all. How long the authorized user account has been in existence determines the credit score.
Credit Utilization – If the primary user holds credit card debt and has high balances on the card, it is a disadvantage to your credit utilization rate. Studies reveal that credit utilization or the ratio of balances to credit limits is closely related to credit scores.
On-time Payments – This is a factor that is considered in your credit score based on the record of the primary holder. On the same note, making some payments on the account past due would also harm your credit score.
Credit Mix – An account mix is the different types of accounts and credit scoring models give credit cards a plus. Authorization is a means of helping build this mix that has a relatively positive effect on scores.

In most cases, AU stands for the right to build credit history and credit mix without incurring the debt. At its best, it helps establish credit scores from the ground up.

Can You Establish Credit Only as an AU?

Credit can indeed be established solely by being an authorized user on the credit card of another person. How much it helps will depend on the credit card account itself that you are being added to. There is a possibility that your credit can be improved greatly if the account is in good standing and has no negative history.

If a person does not have any credit history at all then being an authorized user helps in fast building credit. Hence, while having no other credit accounts, getting a hold of an old credit card account in good standing, probably average increase of 50-100 points or more.

However, authorized user status has some drawbacks regarding credit building. Credit scoring models have also wised up to the practice of ‘piggybacking’ credit through AU accounts. The impact may be limited if.

The authorized user account has been active for less time or has a low credit history.
You have little or no credit history yourself
It takes up a significant amount of your total credit limit.

It is very challenging to build credit as an authorized user only. Although it can be of great assistance in the process, credit bureaus search for accounts where you have some personal liability.

Is It Wise to Become an Authorized User to Improve Credit Rating?

They can also apply for authorized user status which can in a short time establish some credit history or credit score. However, do it with some precautions before opting for this path.

If you have relatives or friends with well-established credit accounts in perfect order, it will be beneficial for you to become an authorized user. You enjoy a good credit rating since their credit practice is responsible and you establish credit based on their credit history.

The problem comes in when the primary account holder is a spendthrift or in the habit of making delayed payments. Everyone can experience financial difficulties even if they try to avoid it. And as an authorized user, all these troubles become your credit troubles through no direct fault of your own.

Discuss the credit use and credit responsibility before signing up as an authorized user. Ensure you are comfortable with the ability of the primary cardholder to handle credit and not ruin your now-linked credit.

Where possible, try to gain more than one account-authorized user status. Having multiple authorized user accounts is beneficial in establishing a diverse credit history. It puts you in a very vulnerable position to rely solely on one account.

Other Ways for Authorized Users to Build Credit

Though being an authorized means to keep on to help begin a credit record early, maintaining one’s credit healthy in the long run requires responsibility towards managing personal accounts. Here are safer ways to continue building your credit over time.

Go for Your Own First Credit Card – Credit cards that are called starter and student are issued to individuals who have not used credit before. They help to set a positive history while the limits are low.
Apply for a Secured Credit Card – these are credit cards that demand the user to deposit an amount of money to act as a security for the credit limit granted. It provides access to credit as well as helps to control risks on the issuer’s side.
Add Your Name to a Joint Account – In this case, you are an account holder and therefore responsible for the account. However, it implies more risk than the status of an authorized user only.
Be an authorized user and take small steps – The status of an authorized user is most effective if it is used as a transition to create a visible credit history. Opening your starter account enables you to prove responsibility when it comes to the use of credit.

The overall objective is to achieve economic self-sufficiency through credit in your name. While becoming an authorized user provides some relief at the onset, good credit means one has to take control of accounts and debts.

The Bottom Line

Is it possible to improve credit by being an authorized user? Definitely – having the right authorized user account instills a positive history and boosts credit scoring models. However, it is most effective when used as one of the several steps that lead to establishing independent credit in your name.

When you rely solely on someone else’s credit account, it means you are vulnerable. The better path develop a credit mix through authorized user status and your first credit accounts. Follow the middle ground when it comes to building a solid, long-term credit relationship.