In Credit, What Is An “Authorized User”?
Our credit is an assessment of our financial behavior over time and the scores we get are an assessment of how much of a risk we are to lend to. There are a multitude of ways we can build or destroy our credit. Much like anything else in life, it is much easier to destroy our credit than to build it. We can destroy things in a matter of seconds. Building tends to take time, especially in credit, where time is the key to everything.
When we want to build our credit scores, we need to take actions that will result in positive information about our financial behavior being reported to the credit bureaus. One of the most common ways to do this is to get a credit card. Let’s quickly look at why credit cards are great tool for building our credit scores.
Our credit scores are like a pie cut into five segments of varying size. Each segment or piece of the pie is a different size to reflect the degree of power it has in the over all score. Credit cards are powerful because they affect more pieces of the pie than anything else. First is payment history – which includes nearly every account of any kind reporting on your credit, including credit cards, making up 35% of your score. Next is balance to limit ratios or utilization – which make up 30% of your score. This segment is basically only affected by credit cards. If you don’t have any cards, then you miss out on a big opportunity to affect your scores. Next is the length of history piece of the scoring pie – which makes up 15% of your score. This is also primarily affected by credit cards, but can be affected by a long term loan such as a mortgage. Short term loans generally have little or no impact here because they have a limited life. Remember, time rules all in credit. The longer you do something the more opportunity there is for it to say something about you. Then there is the mix of credit piece of the pie – which is 10% of your score and then new credit – which makes up 10% of your score.
But it does not stop there. Credit cards also tend to start reporting on our credit much faster than loans. It typically takes about three to four months for a new credit card to develop enough history to start reporting on your credit report. A loan typically takes closer to five to six month to start to help scores. That is one of the reasons you will hear people say that if you are going to get a loan to help build credit that it needs to be at least a one year term or more, or it will be closed and gone before it can start to help you.
Credit cards also tend to cost much less than loans because you are not committing to or tying up a large asset, such as a car, over a long period of time.
It should be pretty easy to see why credit cards are such an important tool for building our credit scores.
But there are many people that can’t get a credit card or need to see an impact sooner than three to four months. That is where an "authorized user" credit card can come to the rescue.
Basically, an authorized user credit card is just a card that was opened by someone else, that the owner of that card then added you to, as an authorized user. This technically gives you permission to use the card just like the owner of the card. You are an "authorized user" of the card. The significance of this is that, if the card is reported to the credit bureaus, the card essentially looks just like it is yours.
You might wonder why we wouldn’t just get our own card or a joint card with someone. Well, if you do not already have a credit score, getting your own can be very difficult. Getting added as an authorized user can be a great help in establishing your first score and making it possible to obtain your own cards or loans to build your own credit going forward.
The other thing to understand is, if you open a card jointly or by yourself, it is brand new and needs time to develop some history before it can start to help. If you get added an an authorized user, the card already exists. That means that when it starts reporting on your credit, that it will look like you have owned the cards since it’s birth and thereby get credit for all the history that is already on the account. Remember how I mentioned that our credit scores are an assessment of behavior over time? Well imagine getting added to a card that has been open for fifteen or twenty years, and suddenly having twenty years of positive history show up on your report. That could have a big positive affect on you scores.
But that is not all. You do not have to ever touch the card, use the card or even look at the card to get the benefit, and you are not obligated to the debt on the card either. You just need to be added as an authorized user on the account and it has to report to the credit bureaus.
Another nice thing is there is very little risk to the owner of the card. Nothing about your credit gets reported on the owner’s credit. About the only risk to the owner of the card would be if they were to give you a copy of the card and tell you to go play with it. That would be a disaster. But if they never give it to you to use, then there is very little concern for them.
Some of you might be thinking that this is unethical. It is not unethical. It is allowed for because in many cases, even if they don’t have a copy of the card, the authorized user may be acting no different than a joint user, in the way they use and take responsibility for the account. The only difference is that they are not an obligor on the account. An example of this might be a wife adding her husband to her cards that have been open for years before they got married. If they wanted to have joint cards, they would have to open all new cards in addition to the cards she already has, or close her cards and open new ones jointly, thereby ending all the positive she has developed over the years on her credit.
There is something to remember though. Not all credit card companies report authorized users to the credit bureaus. If you want to the card to help your scores, you will want to call and make sure the company reports authorized users to the bureaus. Another thing to remember is that just as positive history on the card can help your credit scores, if the credit card gets paid late or is reporting high balance to limit ratios, then the card will hurt your credit scores. Be sure to only add or get added to a card if you fully trust each other.
I hope this shed a little light on what an authorized user credit card is, and that you found the information helpful.
I welcome your comments and and questions and ask that you share this information with your contacts on social media.
If you are finding you have some problems with your credit scores, a reputable credit restoration company like Heartland Credit Restoration is a great place to turn for help. We at Heartland Credit Restoration are all about helping people get positive control over their credit, and the more people that know this kind of information, the better.
If you are facing credit challenges, or you have a client that you are going to have to turn away due to credit challenges, then I encourage you to give me a call. We can look at how Heartland Credit Restoration might be able to help you turn things around and get that credit loan ready. There isn’t a better company you can go to for help.
I will look forward to talking to you and I hope you have a wonderfully blessed day!