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Becoming an authorized user is a common tip for individuals trying to build their credit. But what about the people who are being asked to add authorized users? How do authorized users affect you and your credit scores? As long as you’re making payments on time and neither of you run up a lot of debt, you shouldn’t see much effect on your credit reports. In fact, authorized users won’t show up on your credit reports at all.
Authorized users won’t show on your credit report. In a nutshell, an authorized user is simply someone who holds a card from your account in their name but is not a primary or joint account holder.
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They can make purchases, but they have no obligation to make payments. And unlike a primary or joint account holder, an authorized user can’t do anything more than use the card to spend money. They can’t report a card lost or stolen, close an account or add other authorized users. You are ultimately the only person responsible for the card and its payments.
If you’re adding someone as an authorized user to help them build their own credit, you’ll want to make sure that the card reports authorized users to the credit bureaus, otherwise the card won’t show up on their credit reports either.
One reason people add an authorized user is for convenience. If you’re frequently asking someone to make purchases for you, it could be a good idea to make them an authorized user. It’s a simple way to keep track of spending and can help you avoid the hassle of giving them cash before the purchase or reimbursing them after a purchase is made.
You might also be able to increase credit card rewards earnings. If you’re both spending money on your rewards card account, you could rack up points even faster. Some cards even offer bonuses for adding authorized users.
Another reason to make someone an authorized user is that it might help improve their credit score. If your credit card company reports on authorized user credit reports, your credit limit, credit utilization and payment history will affect their credit. If someone doesn’t have a lengthy credit history or has poor credit history, your positive account management might help.
It’s important to know that an authorized user is not the same as a joint accountholder. A joint accountholder is someone who opened the account with you. Their credit history might also have been used to determine whether you both qualified for the account and what terms were offered. Often, this is the case when spouses hold credit cards together.
Account activity, including payments, are typically reported on the credit reports of both joint accountholders. Both people are also obligated to ensure the bills are paid. If you don’t pay the bill and it goes to collections, the creditor can come after both you and your joint account holder for payment.
Your payment history can help or hinder an authorized user. In short, while they’re never obligated to make a payment, if you don’t, their credit score could take a hit from late payments or collections activities.
But the potential downsides aren’t all for authorized users. If you add someone as an authorized user, that lets them use your account to make purchases. It’s possible they could run up credit card purchases you didn’t approve, leaving you with larger-than-expected debt.
If someone uses your card in this manner, it can also create a high credit utilization ratio. That could hurt your credit score.
Whether removing an authorized user hurts their credit score or not depends on their credit record and whether the credit card was ever reported to the bureaus. When you remove them, the credit card company will eventually stop reporting your account on that person’s record. That can have a few impacts.
Whether you’re looking to rebuild your credit or you’re ready for a rewards credit card, you can find numerous options in the Credit.com credit card marketplace. And if you’re adding an authorized user to your accounts and want to keep a close eye on your credit, consider signing up for ExtraCredit.
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