Building your credit when you don’t have a credit card can be a real catch-22: You need to borrow money to establish or improve your credit score, but you need a good credit score to borrow. If you need to get quick access to credit, say to get a car loan or qualify for an apartment lease, there are ways you can get around the issue like getting someone to co-sign on the loan. Likewise, a secured credit card is a great way to start a credit history at minimal risk to you and the issuer.
A quicker strategy is a mixture of these two options: You can become an authorized user on a friend or family member’s existing credit card account. Keep reading to see how you can raise your credit score with this strategy.
Why Become an Authorized User on a Credit Card
First off, what is an authorized user? An authorized user is someone who is added to the account of someone who already has a credit card, such as a family member, which allows for the existing credit information to be reported to credit bureaus in your name, helping you establish your credit. Here are a few reasons why you should consider becoming an authorized user:
1. Being an authorized user can raise your credit score.
Being an authorized user allows you to charge money to the primary holder’s card as if it was your own account. But how does being an authorized user help your credit?
For one, the credit account you use will show up on your report, allowing you to build a credit history. Spend your money wisely and when it comes time to pay your monthly balance, reimburse your portion of the bill to the primary account holder. Timely payments on the credit card will positively affect your credit score.
You’ll want to check on the scoring model used by the card’s provider. The VantageScore 4.0 model, for instance, might treat authorized users differently than the most-recent FICO model, which could play a role in how your credit score is affected.
2. An authorized user instantly gets a credit history.
When you become an authorized user on a credit account, the entire history of that account shows up on your report. When an older credit account is added to your credit history, your report will show an increase in the average age of accounts you’ve managed, potentially increasing your credit score.
3. You’re not responsible for the account holder’s activity.
As an authorized user on a credit account, you’re not liable for negative balances or charges. The credit card provider won’t ever ask you to cover payments owed. Authorized users can also back out at any time and have their names removed from accounts if the primary cardholders are irresponsible — which can negatively impact your credit score — often without even needing the consent of the primary cardholder.
4. Account holders aren’t affected by an authorized user’s credit history.
An authorized user is not liable for your credit behavior, and you’re not liable for their past credit history. However, an authorized user’s spending behavior might have an indirect effect on your credit if they run up bills they don’t help you pay, so be careful who you sign on.
How Adding an Authorized User Affects Your Credit Score
If you’re a primary cardholder who is considering adding an authorized user to your account, make sure you know what that means for you. Here’s an overview:
1. Account holders hold full responsibility.
An authorized card user isn’t liable for any charges or balances on an account. It is the account holder’s legal responsibility to make sure payments are made. If you add someone to your account and they charge money to the credit card, it’s up to you to pay off the credit card company — regardless of if the authorized user pays you back.
2. You can hurt an authorized user’s credit score.
A primary cardholder’s actions can affect the credit score of an authorized user. If you’ve added your son or daughter to your account, for example, but have maxed out your credit card or fallen behind on payments, you could hurt their credit score in addition to your own.
Credit Tips for Authorizing a User
Before you add someone to your credit card, it’s important to fully understand the implications and have a plan. Here are some tips to help you manage an authorized user on your credit account:
- Figure out a payment strategy: If you plan to add an authorized user to your account, set up a reimbursement schedule. You can have your authorized user pay you directly. If you can entrust the user to have online account access, you can also arrange for them to hop online to pay their portion of the card’s balance each month.
- Use a low-maintenance account: A card with a generous credit limit and high penalty rates could open up too much risk. Even if you trust the user you are adding to your account, keep in mind that stumbles in account management can damage both of your credit scores. Opt for a credit card account that’s been open and active for a few years, has a lower balance-to-limit ratio and has a history of being paid on time.
- Allow an authorized user by proxy: If you have reservations about authorizing someone to use your credit card, you can still add them to your account so they can benefit passively. Simply adding them by name as an authorized user can raise their credit score, even if you don’t actually give them a card or permission to charge anything to the account. But if you don’t keep up with payments, you might do more harm than good to their credit score.
- Don’t overstay your welcome: If you become an authorized user on an account, keep in mind that — if you’re really serious about building your credit score — you’ll someday need to open your own account. So don’t abuse the trust placed in you by the primary cardholder and use your time on their card to get your financial house in order.
- Transition from authorized user to official cardholder: Think of an authorized user status as training wheels for the real deal. After you have spent a year or two on another person’s account, you will want to apply for your own credit card. Being an authorized user for a year or so — along with paying all your bills on time — will hopefully have increased your FICO score enough to make you an attractive customer for credit card providers.
Whether you’re adding an authorized user or becoming one, you’ll want to communicate often about account activity. If you’re both clear about how the account will be managed, you can positively impact both credit scores while keeping your credit utilization low and maybe even netting some additional rewards for the primary cardholder in the process. If you can manage your credit card debt together, the authorized user will someday be able to have their own credit card.
Joel Anderson contributed to the reporting for this article.
More on Credit