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In the credit-building game, being an authorized user can get your name on the boards when you don't have much credit history of your own. You'll be able to start using credit without having to apply for a brand-new account, and you could benefit from the primary cardholder's responsible financial behavior.
But authorized-user status comes with some important caveats, and it's not the only way to build or restore credit. Here's how to make sure it's the right choice for you.
What Is an Authorized User?
An authorized user is a secondary account holder on a credit card. These users can make purchases, but aren't ultimately responsible for payment, unlike a joint account holder or a cosigner would be.
An authorized user may receive his or her own credit card and account number, but the primary cardholder can view all purchases and make payments. You may decide to reimburse the main cardholder for any balance you put on the card, or not to use the card at all. You'll still be able to take advantage of the account's age and positive payment history.
How Does Being an Authorized User Help Credit?
If you have little or no credit history, becoming an authorized user gives you a jump-start. When someone you trust adds you as an authorized user to their credit card, a new account will appear on your credit report.
Additionally, all the characteristics of the original account will have an impact on your credit scores. You'll most benefit from joining an account that has been open a long time, has spotless payment history and has a low credit utilization rate, meaning a small percentage of the total available credit is being used.
But for those factors to benefit you, the credit card issuer must report authorized-user activity to the credit bureaus, and your credit score must incorporate that activity in its calculations. Everyone has multiple credit scores, and some scores may not consider authorized-user activity as representative of your trustworthiness as activity on an individual or joint account.
For that reason, if you're looking to rebound from damaged credit or to see a big boost fast, you may want to open an account of your own, such as a credit-builder loan or secured credit card. More on those options later.
What Are the Risks of Being an Authorized User?
Just as joining a responsible credit user's account can help you, linking yourself with a less reliable cardholder can hurt you. If the cardholder misses a payment or maxes out their card, your credit could be negatively affected. Some credit reporting agencies, including Experian, do not include negative payment history in an authorized user's credit report. But others may.
Before becoming an authorized user, ask the primary account holder about past late payments, how long they've had the account, and how often they use more than 30% of their credit limit. Experts say those with good credit scores use less than that on a regular basis (and those with the best scores stay around 10% or less). To be extra sure you're making the right call, consider asking if the account holder will let you see their credit report.
How to Remove an Authorized User
The primary account holder can remove an authorized user at any time by calling the credit card company's customer service number. Depending on the issuer, he or she may also be able to make the change online. Authorized users may also be able to remove themselves, depending on the credit card company.
If you've been removed from an account as an authorized user but the card activity still appears on your credit report, you can ask the credit bureaus to dispute it with the card company. You can generally start a dispute online and get updates on the process via email.
Other Ways to Build Credit
If you don't have access to someone who's willing to add you as an authorized user, there are other options for building credit. Or, if you'd like to see faster progress, consider opening one of these types of accounts in addition to seeking authorized-user status:
- Secured credit card: This type of credit card is best for those who are new to credit or want to repair it. You'll make a deposit, generally of $200 to $2,000, which becomes your credit limit. As you use the card responsibly—meaning you keep the balance low at all times and pay it off each month—the issuer might turn it into a traditional unsecured card. You can then get your deposit refunded to you.
- Credit-builder loan: A credit-builder loan functions similarly to a secured credit card, without the deposit. You'll apply for a loan—typically from a credit union or community bank—and make monthly payments toward it over a period of six to 24 months. Once your term ends, and you've made all your payments on time, you'll have access to the balance in the form of a savings account. That way, you're saving and building credit simultaneously.
The Bottom Line
Under the right circumstances, becoming an authorized user can give you access to the world of credit without requiring you to open your own account. Make sure your credit card issuer gives your behavior the recognition it deserves, and pick a worthy primary cardholder. But for an extra boost, pair—or replace—being an authorized user with credit-building strategies that could be even more effective.