Authorized Users – For Better or For Worse?

Being an authorized user on someone else’s credit card can sometimes be a double-edged sword, as can having someone as an authorized user on one of your credit cards. At the onset it might seem like a good idea and even help, but without proper consideration it might not turn out to be such a great idea in the long run.

It is very beneficial for those consumers who have no or low credit scores and no revolving debt to be added as an authorized user to someone else’s credit card. If the borrower has no scores and is added to an account with a long history, no late payments and a low balance it could quickly generate good scores for that borrower as soon as it reports to the credit bureaus. This is actually a very good way for parents to help their children begin to build credit. While it is a good place to start, it is important for that person to also work on establishing their own credit outside of being an authorized user. In the mortgage world there are some lenders who require that all authorized user accounts be removed from a credit report before they will consider approving the loan. An authorized user normally does not make payments on a credit card, nor are they financially liable for that card. Some lenders look at credit scores based on authorized user accounts as inaccurate as they are not based on credit for which the borrower actually is responsible.

The flip side of this arrangement is also true; if the primary holder of the account makes a late payment or runs up the balance, this activity will be reflected on the authorized user as well which could cause a significant drop in the authorized user’s scores. If this happens it is not always easy to have yourself removed as an authorized user. It really depends on the card; some cards will allow the authorized user to have themselves removed, while others require that the primary account holder call to have them removed. Once that’s done, then the account will be removed from the credit report. Be aware however that there are a couple of credit cards that will continue to report that card on the credit report of the authorized user even after the authorized user has been removed. If you are being added to someone’s credit card it is a good idea to be very sure they are someone who is responsible with their credit card usage and paying their bills.

The consequences for having someone as an authorized user on one of your credit cards are not quite as precarious as being an authorized user. Adding someone to a credit card does not affect the primary borrower’s credit at all unless the authorized user actually has access to the card and uses it unwisely. If the authorized user has a card and is expected by the primary account holder to make payments and the payments don’t get made or the authorized user runs up the balance on the card, then it could have detrimental effects on the primary borrower’s scores. If you are adding someone as an authorized user to one of your existing cards to help them establish credit, it is best to not actually give them a card to use or to expect them to make payments on it.

Being an authorized user on a credit card or adding someone as an authorized user can be a great way to help that person establish credit, but it should only be a short term fix. The consumer should continue to work on establishing their own credit. The person who is the primary should always be the one to keep up on the payments and control what spending occurs on the card. With proper consideration of the risks and benefits of authorized users, it can be a very helpful stepping stone to a future of good credit.