Understanding Authorized User Accounts | Credit 101 Ep. 176

Authorized user accounts can be a powerful tool for building or improving your credit. Here’s a detailed look at what they are and how they work:

1. What is an Authorized User?

An authorized user is someone who is added to another person’s credit card account with the primary cardholder’s permission. The authorized user receives a card with their name on it but is not legally responsible for paying the bill. The primary cardholder remains responsible for all payments.

2. Benefits of Being an Authorized User

• Credit History Boost: Being added as an authorized user can help you build or improve your credit history. The account’s history, including payment history and credit utilization, is reported to the credit bureaus on your credit report.
• Access to Credit: As an authorized user, you can use the credit card for purchases, which can help you build a positive payment history and credit profile.
• Potential for Higher Credit Score: If the primary cardholder has a good credit history and low credit utilization, this can positively impact your credit score.

3. How to Become an Authorized User

• Request Permission: Speak with the primary cardholder (e.g., a parent, spouse, or friend) and request to be added as an authorized user on their credit card account.
• Provide Necessary Information: The primary cardholder will need to provide your personal information to their credit card issuer, such as your full name, date of birth, and Social Security number.
• Card Issuance: Once approved, you may receive your own card with your name on it, allowing you to make purchases.

4. Responsibilities and Limitations

• Not Legally Responsible: As an authorized user, you are not legally obligated to make payments on the account. The primary cardholder remains responsible for all payments.
• Usage Limits: The primary cardholder may set limits on how you can use the card, including spending limits or restrictions on certain types of purchases.
• Impact on Credit: The account’s activity, including payment history and balance, will be reported on your credit report. If the primary cardholder misses payments or carries high balances, it can negatively affect your credit.

5. Choosing the Right Account

• Good Credit History: Opt for an account with a primary cardholder who has a strong credit history and responsible credit habits. Their positive payment history and low credit utilization can benefit your credit score.
• Account Status: Ensure that the account is in good standing and that the primary cardholder has a history of making timely payments.

6. How to Remove Yourself as an Authorized User

• Request Removal: If you want to be removed from the account, contact the primary cardholder and ask them to request your removal from their credit card issuer.
• Impact on Credit: Removing yourself may impact your credit score if the account was positively affecting it. However, it’s important to consider your overall credit profile and other credit-building strategies.

7. Risks and Considerations

• Dependence on Primary Cardholder: Your credit improvement is tied to the primary cardholder’s credit behavior. If they fall behind on payments or misuse the account, it can harm your credit score.
• Limited Control: You have limited control over the account’s activity, and the primary cardholder’s decisions will impact your credit profile.

8. Alternatives to Authorized User Accounts

• Secured Credit Cards: These require a deposit but can help you build credit with responsible use.
• Credit Builder Loans: Designed specifically to help individuals build or improve their credit history.
• Retail Credit Cards: Many retail stores offer credit cards with lower requirements, which can help you build credit if managed responsibly.

Conclusion

Being an authorized user can be an effective way to build or improve your credit, especially if you are added to an account with a strong credit history. However, it’s essential to choose the right account and maintain good communication with the primary cardholder to ensure that the account benefits your credit profile.