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Having a good credit score is essential to passing many of the financial milestones of life: it can help secure a low interest rate on a mortgage for your dream house or allow you to sign up for a travel credit card that gives you enough rewards to cover a a flight for the vacation you've been meaning to take.
Attaining a good credit score is hard work and if you're a young person with little or no credit history or someone who's been delinquent on their debt payments in the past, getting a good credit score to achieve those financial milestones can be even harder. Becoming an authorized user on a credit card is one way to improve your credit history without having to be on the hook for monthly payments.
First off, an authorized user is able to make purchases on a primary cardholder's account but is not responsible for paying off the card balance. Authorized users don't have the same abilities as a primary cardholder, so they won't be able to increase the credit line, add more authorized users or redeem rewards.
An authorized user can piggyback off the good credit history of the primary cardholder. If the primary cardholder has a long history of making their payments on time and in full, the authorized user should see that positive history reflected on their own credit report. According to a 2018 study done by Credit Sesame, people who had a fair credit score saw their credit score improve nearly 11% just three months after becoming an authorized user on someone's credit card.
The different credit scoring models, FICO and VantageScore, differ in how they weigh an authorized user's information, explains Rod Griffin, Senior Director of Public Education and Advocacy for Experian.
The authorized user status on cards is often used by parents for their children. By making your child an authorized user on your credit card, you can jumpstart their credit history. Furthermore, extending your line of credit for an authorized user can decrease your credit utilization ratio which can boost your credit score.
The amount of influence a primary cardholder's credit history has on the authorized user's credit history depends on a variety of factors, says Matt Schulz, Chief Credit Analyst at the Lending Tree.
Schulz notes that if you're young and have little or no credit history, being an authorized user can have a big effect on your credit score because it will be the foundation of your credit history. However, if you have poor credit history, being an authorized user on someone's credit card will have less of an effect because you already have a lengthy credit history.
Mackenzie Stewart, a personal finance blogger at Life@23k, was an authorized user on both her parent's credit cards. She saw her mother's credit history appear on her credit report when she was a teenager, noticing that her credit score was around a 550 despite having no credit history of her own.
"My mom had decided to put me on one of her cards to start building my credit history," Stewart said. "That was still skin in the game that [allowed me to] have access to things that I didn't have [access to] before."
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- Primary cardholder annual fee: $95
- Authorized user fee: $0
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- Primary cardholder annual fee: $250 (see rates and fees)
- Authorized user fee: $0 for up to 5 cards, then $35 per card
The American Express Gold Card currently offers 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases within the first 6 months from account opening.
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However, if you become an authorized user on someone else's credit card or plan on adding someone as an authorized user, you should be aware that some credit bureaus include the primary cardholder's negative payment history and credit utilization ratio on the authorized user's credit report.
"Experian does not include negative payment history in an authorized user's credit report, but a high utilization rate on the account could potentially hurt scores," Griffin said.
Stewart saw both the negative and positive effects of being an authorized user on her parents' credit card accounts. When she was an authorized user on her father's CareCredit card, a card used to pay off medical treatments and procedures, she saw frequent fluctuations in her credit score. When her father increased or decreased the line of credit on his card, his credit utilization ratio would fluctuate and so would hers.
While parents may be acting with good intentions when making their children authorized users on their card, both the parent and child's spending behavior could have negative effects on both of their credit scores.
According to Schulz, making someone an authorized user on a credit card does not mean that you have to give the user the credit card.
"If you make somebody an authorized user on a credit card account. You don't actually have to give them access to the card. A lot of parents will add their kids to the account and never give their kids the card and never tell them that they've been added," Schulz said. "So that's kind of the way of giving your kid a boost without the added pressure of seeing all that extra credit and wanting to go on a spending spree."
Schulz also notes that when primary cardholders remove an authorized user on their card, the primary cardholder's credit history will no longer influence the authorized user's credit history. This means you can erase both poor credit history and positive credit history on an authorized user's credit report by removing them.
Before adding someone as an authorized user on a credit card, you should consider whether your payment history will reflect positively or negatively on an authorized user's credit report. Being aware of your own debt repayment habits and your authorized user's spending habits will go a long way in ensuring that you are helping (and at the very least, not harming) each other's credit scores.