If you’re looking to supercharge your credit, you might’ve come across the idea of being added as an authorized user to someone else’s credit card.
Before you do so, there are some things to consider with being added to a person’s card (or when thinking about adding someone to your account).
What’s an authorized user?
If you’re an authorized user of a credit card, it means the account owner gave the thumbs up to your financial institution to let you use the card. When you swipe that plastic, purchases you make go through like any other transaction, but the authorized user isn’t on the hook to pay; that responsibility stays with the person who actually owns the account.
This sounds like a pretty sweet deal for the authorized user, but there are potential drawbacks for the authorized user, as well as for the account holder.
Let’s talk about being an authorized user and how it relates to your credit score
If you don’t have credit history, getting started on building one can be tricky. That’s because to have good credit history and the good rates that go with it, you need to be offered credit. And to be offered credit – like a loan or a credit card – you need good credit history.
Frustrating, we know! But there might be a workaround.
As an authorized user, there’s a chance your name might show up on the credit report because some financial institutions may (or may not) list authorized users when reporting to the credit bureaus. If your name isn’t on those reports, then the credit history associated with that account won’t be helping you build your own credit history.
Credit score impact: zero for the authorized user, assuming that their name isn’t included on any credit reporting.
Another reason being an authorized user may not be beneficial is linked to the credit history of the person adding you to their account. While it might seem like a relief if the credit card company includes authorized users in their credit bureau reports, there’s a catch. If the account holder has poor credit history, your name will be on that report, which could potentially impact your credit score.
Credit score impact: potentially negative for the authorized user, depending on the creditworthiness of the account holder.
An account holder may not want to add an authorized user
Adding an authorized user to their credit card account might not be a viable option for some account holders, even if you’re fairly close to them. There are a couple of reasons why they might be hesitant:
- Taking you on as an authorized user might increase their credit utilization ratio, which is a big factor when it comes to maintaining a good credit score. A low ratio of credit usage is recommended, generally below 30%. If you become an additional user, your usage of the credit, however responsible, could push the account holder closer to or even over this limit, resulting in potential damage to their score.[i]
- You don’t have to pay for your purchases, but they do. All of them. You may have the best of intentions of paying the account holder back, but the account holder remains on the hook for the debt. This creates a potential financial burden on them that they might not be comfortable with.
Alternatives to being an authorized user: joint accounts and secured credit cards
Creditors want to know that you are financially responsible, meaning you’ll pay them and pay them on time. Two ways you can show your responsibility and build up your credit reputation: being a joint account holder on a credit card account, or getting a secured credit card.
More on your options:
When you’re a joint account holder, you can enjoy all the benefits of being an authorized user while building your own credit history. However, keep in mind that you share an equal obligation to pay the credit card bills, regardless of who made the purchases.
This situation works out great when things are going smoothly and payments are made on time with no maxing out the credit limit. But if things slip up, it could mean bad news for both your credit score and the other account holder’s.
Credit score impact: could help or hurt both people on the account, depending on how joint holders manage the account.
Secured credit cards may look like a pay-as-you-go deal because a deposit is often required before you are issued a credit card, but it’s a bit more nuanced than that. The deposit money, which is usually equal to your credit limit on the card, is a security deposit that is held by the credit card company in the event you aren’t able to keep up with your payments.
A benefit here is that it’s just you, which means there is no one else on the account that could bring you down by not paying the bill. Another is that the deposit is usually refunded to you once you’ve shown your financial institution responsible usage and eventually get upgraded to an unsecured, regular credit card. Not sure about the deposit? Check out the card’s terms and conditions.
Credit score impact: could go either way in helping or hurting your credit score, depending on how you stay on top of payments and manage your credit usage.