How to Build Your Credit by Adding Yourself as an Authorized User: A Smart Strategy
Building a strong credit score is essential for financial health. Whether you’re applying for a mortgage, car loan, or credit card, a good credit score can open doors to better interest rates and financial opportunities. If you’re just starting your credit journey or looking to improve your existing score, one effective strategy is becoming an authorized user on someone else’s credit card account. Here’s how it works and the benefits it can offer.
What Does It Mean to Be an Authorized User?
An authorized user is someone who is added to a credit card account by the primary cardholder but is not responsible for making payments or managing the account. As an authorized user, you are granted access to the credit card’s line of credit, and the account’s activity is reported to the credit bureaus under your name.
However, it’s important to note that as an authorized user, you are not legally responsible for paying the credit card debt. That responsibility still lies with the primary cardholder. Your primary role is to benefit from the positive credit activity on that account, which can help you build your credit score.
How Adding Yourself as an Authorized User Can Help Build Credit
- Boost Your Credit History
Credit history is a significant factor in determining your credit score. If you have a limited or no credit history, becoming an authorized user on an account with a long history of on-time payments can add positive information to your credit report. Even if you’ve never had a credit card or loan in your name, this account history can help establish your creditworthiness. - Improve Your Credit Utilization Ratio
Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. Adding yourself to an account with a high credit limit can improve your utilization ratio, which may help boost your score. For example, if the primary cardholder has a $10,000 limit and uses only $2,000, your utilization ratio will be 20%. This can be beneficial if you have a lower credit limit or have been using a large percentage of your available credit. - Benefit from Positive Payment History
If the primary cardholder has a good payment history (e.g., always paying on time and keeping balances low), that positive behavior will be reflected on your credit report. On-time payments are one of the most important factors in building a good credit score, and being added as an authorized user allows you to “inherit” that history. - No Responsibility for Payments
One of the key advantages of being an authorized user is that you don’t have to manage or pay for the card. If the primary cardholder is responsible and makes timely payments, you can benefit without the stress of managing the finances. Of course, it’s essential to make sure the primary cardholder has a solid credit history before adding yourself to their account.
Benefits of Being an Authorized User
- Quick Credit Score Improvement
For individuals with a limited credit history or poor credit, being added as an authorized user can provide a quick boost to your score. This is particularly helpful if you’re trying to improve your credit score for a big financial decision, like purchasing a home or applying for a loan. - Faster Approval for Credit Products
Having a higher credit score as a result of being an authorized user can make it easier for you to qualify for your own credit cards or loans in the future. Lenders look at your credit history and score when assessing risk, and a higher score makes you appear less risky, increasing your chances of approval. - Lower Interest Rates
A good credit score can help you qualify for loans and credit cards with lower interest rates. When you’re an authorized user, improving your score can save you money in the long run, as you’ll be eligible for better rates. - No Financial Liability
As mentioned earlier, while your credit score benefits from the account’s positive activity, you aren’t responsible for the debt. This makes it a low-risk option for improving your credit, especially when compared to other methods like opening your own credit card account or taking out a loan.
Things to Consider Before Becoming an Authorized User
While being added as an authorized user has many advantages, there are some things to keep in mind:
- Trust the Primary Cardholder
Since the primary cardholder is responsible for making payments, it’s important to trust that they will manage the account well. If they miss payments or run up large balances, it can negatively affect your credit score. Be sure to have open conversations with the primary cardholder about their ability to manage the card responsibly. - Not All Issuers Report Authorized Users
While most major credit card issuers report authorized user activity to the credit bureaus, not all do. Be sure to confirm with the card issuer that they will report the account activity on your credit report. - Short-Term Fix, Long-Term Solution
Being added as an authorized user can provide a short-term boost to your credit score. However, to build lasting credit, it’s important to continue managing your own credit responsibly. Use the boost as a stepping stone to establish your own credit history by opening your own credit accounts and maintaining good habits. - Age of the Account Matters
The longer the credit card account has been open, the more beneficial it can be to your credit score. A newer account may not have the same impact as a long-established account with a strong history of on-time payments.
Final Thoughts
Adding yourself as an authorized user on someone else’s credit card is a smart and effective way to build or improve your credit score, especially if you’re just starting out or recovering from past credit issues. By taking advantage of an established account with a strong history of on-time payments, you can benefit from a better credit score without the responsibility of managing the account.
However, it’s crucial to trust the primary cardholder, ensure the account is reported to the credit bureaus, and continue to build your credit through other responsible credit behaviors. This strategy, when used correctly, can be a valuable tool in your credit-building journey.
