Building credit sets you up for great opportunities. You can borrow more money from banks, get loans at lower interest rates, and save money in a bunch of other ways. Lenders, insurers, and employers look at credit reports before making decisions. You need a loan or line of credit to establish a credit history, but not everyone can use those financial products. As a result, some people resort to becoming authorized users instead of taking out loans and lines of credit under their name. Becoming an authorized user has several advantages, but this distinction can become problematic if you are not careful.
What are Authorized Users?
Credit cardholders can add authorized users to their credit cards. Authorized users can use the primary cardholder’s credit card. They essentially get the same rights, and changes to the primary cardholder’s credit score will impact their credit as well. This arrangement can help authorized users get access to credit cards and build their scores before being able to obtain their own cards. Some aspiring credit cardholders are too young to get their own card, while other people need to establish a credit history before applying for an unsecured credit card with great perks.
How Credit Cards and Authorized Users Work
An authorized user can use the same credit card as the primary holder. Most credit card issuers mail a copy of the credit card to the primary cardholder’s address. The primary cardholder would then have to give this card to the authorized user, but this step is optional. An authorized user does not have to use the primary cardholder’s credit card to see changes to their credit score. The primary account holder can remove an authorized user from their credit card at any time.
Who Can Be an Authorized User?
Becoming an authorized user isn’t hard. You only have to find someone who will put you on their credit card. The only requirement is that you fulfill the age requirement, which varies for each issuer. Some credit card providers require authorized users to be at least 13 years old. Others set the minimum at 16 years old, and a few credit card issuers do not have age minimums. Some parents use this to their advantage and get their kids enrolled as authorized users early so the kids have good credit scores right from the start. This strategy also gives their kids a more convenient payment method instead of having them wait until they turn 18.
You don’t have to fulfill any income requirement or have a minimum debt-to-income ratio to become an authorized user. If you are old enough based on the issuer’s standards, you can become an authorized user.
How Does Being an Authorized User Affect Your Credit
An authorized user’s credit changes based on the primary cardholder’s activity. On-time and late payments will show up on both individuals’ credit reports. Being an authorized user is good or bad, depending on who is the primary cardholder. The primary cardholder is responsible for all debt incurred through the credit card, and authorized users cannot repay the debt through an online portal. The responsibility falls on the primary cardholder, and that individual’s decisions also affect the authorized user.
Benefits of Becoming an Authorized User
Are you considering becoming an authorized user or letting your child be an authorized user for your credit card? These are the perks authorized users get to enjoy:
- A head start on credit building: Kids can’t take out loans or lines of credit, but they can become authorized users on a parent’s credit card. Parents with good credit can get set their kids up with good credit before they apply for a loan or line of credit. It’s an immense advantage that can increase their likelihood of achieving financial success. You don’t need a credit history to become an authorized user, and it can be the start of your journey.
- Delegate credit building to someone else: An authorized user doesn’t have to pay the bills or worry about credit utilization. The primary cardholder handles those responsibilities. Authorized users get to piggyback on someone else’s success with credit building.
- Don’t commit yourself to high fees and interest rates: Some people use secured credit cards and credit builder loans to build credit. However, secured credit cards have low credit limits and high fees. If you take out a credit builder loan, you will have to make a security deposit, pay fees, and navigate a high-interest rate. While these financial products can help with credit building, it’s more convenient to build your credit as an authorized user.
- No hard credit checks: Most lenders will run a hard credit check to see if you qualify for a loan or line of credit. A hard credit check will hurt your score, but you don’t have to worry about that step if you become an authorized user.
Risks of Becoming an Authorized User
Authorized users enjoy many benefits, but those advantages can turn into shortcomings. Here are some of the risks to watch out for if you decide to become an authorized user.
- Your credit depends on the other person: As an authorized user, you don’t have as much control over your credit score. Everything will be fine if the primary cardholder takes care of payments, but your credit score will go down if the primary cardholder falls behind on payments and racks up credit card debt. You are not liable for the primary cardholder’s credit card debt, but your credit report is vulnerable to any mistakes.
- You may not be able to help: The primary cardholder has to pay off their credit card balance in their bank account. Authorized users do not have access to this online portal and cannot make payments on behalf of the primary cardholder. You can give money to the primary cardholder that they can use to make the payment, but you would have to trust that they use your money to pay off credit card debt. If you no longer feel comfortable as an authorized user, you can remove yourself from the card online or by calling the card issuer.
- You won’t get any rewards: If you spend money on someone else’s credit card, you don’t get rewards. Authorized users have to open up their own credit cards to get rewards like 2% cashback instead of using the primary cardholder’s credit card. Authorized users can use their status to build credit and qualify for credit cards with better rewards programs later.
Should You Become an Authorized User to Build Your Credit?
Consumers have many ways to build credit, but most of those choices require that you already have good credit. Want to get a good credit card or a loan with reasonable interest rates? You need a good credit score for that. You can build credit on your own, but being an authorized user can speed up the process. Authorized users place immense trust in the primary cardholder, and the primary cardholder does the same if they give a copy of their credit card to the authorized user.
Becoming an authorized user for someone else’s credit card can present a clear path to a good credit score if you find the right person. Most people become authorized users on a friend or family member’s credit card. However, you should also keep this individual’s financial habits in mind before becoming an authorized user and entrusting them with your credit score.
Build Your Credit Without the Risks
Becoming an authorized user can improve your credit score, but this route puts you in less control of your financial future. Things can do well if you entrust the right person, but if the primary cardholder falls behind on payments, your credit report will accumulate a history of late payments. That’s not good for your chances of getting a higher loan amount at a lower interest rate in the future.
Grain puts the control back where it belongs: in your hands. Instead of running a credit check or requiring that you have a credit history, Grain looks at your cash flow to determine if a line of credit makes sense for you. Grain is a mobile app that syncs a line of credit with your debit card. As a result, you won’t have to worry about racking up excessive credit card debt, and each debit card transaction will help you build credit. Grain covers each expense with its line of credit, and then it takes funds from your debit card to repay the credit line. It’s an approach that makes credit building more accessible to everyone.
Want to use Grain to build your credit score even if you don’t have any credit history? You can download the Grain app to get started today.
