How Being an Authorized User Can Boost Your Credit Score and What You Should Know

Improving your credit score can open doors to better loan rates, higher credit limits, and more financial opportunities. One lesser-known but effective way to build credit is by becoming an authorized user on someone else’s credit card. This strategy can help you establish or improve your credit history without the responsibility of managing the account yourself. Let’s explore how being an authorized user works, the benefits it offers, how to choose the right card and cardholder, and the risks involved.

How being an authorized user can improve credit scores

What Does It Mean to Be an Authorized User?

An authorized user is someone who is added to another person’s credit card account with permission to use the card for purchases. Unlike the primary cardholder, the authorized user is not legally responsible for paying the bill. The primary cardholder remains responsible for all charges and payments.

When you become an authorized user, the credit card issuer reports the account’s activity to the credit bureaus under your name as well. This means the account’s payment history, credit utilization, and age of the account can appear on your credit report, potentially boosting your credit score.

Benefits of Being an Authorized User

1. Improved Credit History

One of the biggest factors in your credit score is your payment history. If the primary cardholder has a strong record of on-time payments, this positive history can reflect on your credit report. This can be especially helpful if you have a limited or no credit history.

2. Better Credit Utilization Ratio

Credit utilization is the percentage of available credit you are using. Lower utilization generally improves your credit score. If the primary cardholder maintains a low balance relative to their credit limit, this can help improve your credit utilization ratio as it appears on your report.

3. Longer Credit History

The length of your credit history affects your score. Being added to an older account can increase the average age of your credit accounts, which is beneficial for your credit score.

4. No Need to Qualify for Credit

Since you are not the primary cardholder, you don’t need to apply or qualify for the credit card yourself. This can be a great way to build credit if you have trouble getting approved for your own card.

How to Choose the Right Credit Card and Cardholder

Not all credit cards or cardholders will help your credit equally. Here are some tips to make the best choice:

• Select a Card with a Good Payment History

The primary cardholder should have a history of paying bills on time. Late payments can negatively affect your credit.

• Look for Low Credit Utilization

Choose a card where the balance is consistently low compared to the credit limit. High balances can hurt your credit score.

• Consider the Age of the Account

Older accounts add more value to your credit history length.

• Choose a Trustworthy Cardholder

Since the primary cardholder is responsible for payments, pick someone reliable to avoid risks to your credit.

• Check the Card Issuer’s Reporting Policies

Confirm that the credit card issuer reports authorized user activity to all three major credit bureaus (Experian, Equifax, TransUnion).

Potential Risks and How to Avoid Them

While being an authorized user has benefits, there are risks to consider:

• Negative Payment History

If the primary cardholder misses payments or carries high balances, your credit score can suffer.

• Loss of Control

You cannot control how the primary cardholder manages the account.

• Impact on Relationships

Financial arrangements with friends or family can sometimes cause tension if problems arise.

How to Mitigate Risks

• Communicate Clearly

Discuss expectations and responsibilities with the primary cardholder.

• Monitor Your Credit Report

Regularly check your credit report to ensure the account is reported correctly and payments are on time.

• Have a Backup Plan

Be prepared to remove yourself as an authorized user if the account becomes problematic.

• Limit Authorized User Status to Trusted Individuals

Ideally, become an authorized user on a close family member’s or trusted friend’s card.

Being an authorized user can be a powerful tool to build or improve your credit score when used wisely. It offers access to a positive credit history and better credit utilization without the need to qualify for your own credit card. By choosing the right card and cardholder and staying vigilant about potential risks, you can make this strategy work in your favor.