Does Adding an Authorized User Build their Credit?
Having a son, daughter, spouse or other loved one become an authorized user of your account in order to boost their credit score is one of the most common strategies out there. It will help build up their credit score from scratch or repair it if it’s damaged. The authorized user strategy is a great one to use for both scenarios as long as it’s used correctly.
How Authorized Users Work
One person’s name, for instance, your son or daughter, will be added to an existing credit card account that belongs to you. However, this does not make you a joint cardholder or a co-signer. Instead, you’ve simply added a user who has access to your account. After doing so, you should receive a card in the mail with the authorized user’s name on it. Once the card has been activated, your son or daughter will be given as much access as you to the card.
The Payment Liability of The Authorized User
Authorized users cannot be held liable for the balance or charges that are made on the account. This means that they will never be asked to repay the credit card; instead the full responsibility rests on you as the primary cardholder, as well as anyone else who is obligated on the account.
Credit Reports of Authorized Users
After several months of using a credit card as an authorized user, the credit history that is associated with the account will be added to his or her credit reports. Although this is usually the case, take into consideration the fact that it does not always happen with every credit card. It’s recommended that you check with the credit card issuer beforehand in order to ensure that their credit reporting practices will benefit an authorized user.
Credit Scores of Authorized Users
When the account is added to an authorized user’s credit report, it will immediately be taken into consideration by credit scoring systems. It will have as much weight as any other type of credit card, and won’t be dinged for being an authorized user account. However, there is an exemption for FICO’s new scoring models, which will take into consideration whether someone is just trying to beat the system by piggybacking off of someone else’s account.
FICO’s Logic With Anti-Piggybacking
FICO does not disclose any details on how they score, however many people think that they’ve been able to figure out when someone is simply being added on to a credit card account to help their credit score without any sort of legitimate relationship between those two consumers. Due to this, the authorized user typically has to be a close relative in order to gain benefits.
Authorized User’s Responsibility
When you add someone to your account as an authorized user, they are able to make purchases on your account. It is completely your responsibility to ensure that they pay for the expenses that they incur. This may be achieved by asking that they pay you directly, or by giving them online access so that they can make payments themselves. However, they are not legally liable for the payments—you are.
For Best Results
Make sure that the authorized user on your account uses this strategy in order to establish their credit, at which time they should then establish their own account in their name. Bear in mind that some lenders will want to see that they can repay credit cards on their own before they’ll give them their own line of credit, which means that the authorized user strategy may not me viable. Once again, it’s important that you check with the credit card company beforehand to ensure that this isn’t the case.