The Pros and Cons of Becoming an Authorized User to Build Credit

The concept of becoming an authorized user to build credit is a well-known yet often misunderstood technique. An authorized user credit score can help people with bad or no credit repair their financial situation and open up opportunities that were otherwise unavailable. It's important to understand the potential pros and cons before diving into this financial tool.

When it comes to building good credit, a major component is establishing a positive credit history. Becoming an authorized user on someone else’s existing credit card account can be beneficial because it allows you to “piggyback” off of their established good payment history and credit rating. This can quickly help you improve your own personal credit score without having to go through the lengthy process just getting started with your own accounts.

On the other hand, being an authorized user also carries some risks, including liability for any unauthorized spending done by the primary cardholder. Additionally, if the primary cardholder misses payments or exceeds their limit, it could negatively affect your associated credit score as well, so choosing who you become an authorized user on is very important.

An authorized user on a credit card is someone who has been given permission by the primary user to make charges on the credit card. The primary user is the person legally responsible for paying charges made with the credit card, and they must agree ahead of time that an authorized user can access it.

Authorized users can have many advantages over single card holders. For example, their credit utilization ratio, or how much of their available credit limits are being used, will be spread across multiple cards and it may improve their overall credit score. Since payment history is one of the most important factors in determining a person's credit score, having more than one card with a good payment history can be beneficial for authorized users. Furthermore, if there is a balance owed on the single card and its credit limit falls dramatically due to that debt, an authorized user's credit score won't be affected.

Overall, authorizing someone as an authorized user on your account can be an effective way to boost their credit score without having them take out any additional loans or open new lines of credit themselves. By doing this, you'll help them achieve better financial stability in the long run.

Being an authorized user on a credit card account can have a big impact on your credit score. For those who are unfamiliar, this means that you can make purchases with the account but it is the primary account holder that pays the full balance. It's not just the payment activity that can help you make progress towards a more robust credit history either; credit card companies also report authorized user activity to the major credit bureaus. Your credit report will include information such as your credit limit, utilization, and payment history — all of which can help if managed responsibly meaning you avoid late or missed payments and keep high levels of utilization low.

The bigger positive impact is seen when you're added to an authorized user account that has an established credit history. This is because many lenders consider a long-term history of responsible use of credit when issuing new accounts or lines, so having an authorized user status on an existing account can prove beneficial. On the other hand, if the primary cardholder has damaged their credit due to missing payments, it could work against you as an authorized user in terms of improving your own score.

For those looking for ways to build their personal credit profile beyond simply having a Netflix subscription for which their parent pays, being an authorized user is a great way to get started and make progress towards building a strong and healthy financial life. With proper management and understanding of how authorizing affects your overall report, it could result in helpful boosts to your scores over time.

Being an authorized user has both positive and negative implications for credit scores. Credit bureaus include authorized user accounts when calculating credit utilization ratios, which can potentially hurt scores if there is a high utilization rate or if the account includes negative payment history. Griffin Schulz, an expert on financial education, has experienced both the positive and negative effects of being an authorized user firsthand.

When Schulz was 18 years old, his father added him as an authorized user to his credit card accounts because he wanted to help him establish a good credit score while providing guidance with his finances. While the intention was good, it had some unexpected consequences due to frequent fluctuations in his father’s credit utilization ratio which caused Schulz’s credit score to decrease. His father increased the amount of debt he carried on the accounts, which caused their combined credit utilization rate to increase and in turn decreased Schulz’s score.

Making matters worse, Schulz’s parents struggled with debt repayment habits that resulted in a poor credit history reflected negatively on his own score. This added pressure on Schulz who felt obligated to go above and beyond what was expected in order to offset some of this damage. He took out extra cards and went on a spending spree under the assumption that it would reflect positively on his score; however this created more debt than he could handle. When primary cardholders remove an authorized user from their account, their influence can remain for months or even longer thus continuing to affect the authorized user's overall credit score negatively.