Authorized users are people that are authorized to use credit cards owned by a primary account holder with a bank or lender. Most authorized users have the accounts for the purpose of boosting their credit history and credit score. It is not recommended for an authorized user to have access to the credit card when they are using authorized user accounts as a strategy to build their personal credit. The purpose of this strategy is for the credit card account to report to the authorized user’s credit history to build their credit score using the account holder’s credit history.
Who Can Use Authorized User Accounts?
Setting up an authorized user account makes sense for you if you are a small business owner or entrepreneur that is in need of capital and has no or very little credit history. Raising capital, especially debt financing, requires a well-managed and established credit history. You can increase your personal credit score in a short period of time as long as you are able to find a creditworthy primary account holder.
Facts About Authorized User Accounts
There are a few key factors that you should be aware of about authorized user accounts if you are looking to use this strategy for increasing your personal credit score.
Anyone can become an authorized user on a credit card account as long as the primary cardholder agrees. It does not matter how long each party has known each other or their relation. Depending on the lender, the primary account holder may add up to 20 authorized users to a single credit card account. It is best to ask the lender how many they will allow to get a definite answer.
The primary account holder’s personal credit history will not be affected by an authorized user’s personal credit. The authorized user inherits the credit card from the primary account holder.
It is important to remember that this authorized user strategy can work for someone that is trying to increase their credit score and credit history. It can backfire if the authorized user begins to actually start using the credit card. It can also backfire if the primary account holder begins making late payments. The late payments will report to the authorized user’s credit history. This can be removed right away after removing the authorized user from the account. It is critical that the authorized user never uses the credit card and that the primary account holder manages the account properly, so it is never paid late or over-utilized.
Information Needed to Set up an Authorized User Account
The lender will ask the primary account holder for specific information including first and last name, Social Security Number, and Date of Birth.
Some lenders will not ask for a social security number. In this case, you should volunteer the information to guarantee that the credit card will report to their personal credit history.
Choosing the Right Primary Account Holder and the Right lender for Authorized User Accounts
It can be hard choosing the right primary account holder. Find a primary account holder to prove how they know to manage their credit. You will want to “piggyback” off of someone who has great credit. Also, you will need to be sure that there are not a significant number of late payments on the account. There should be no late payments in at least for the last two years. The primary account holder needs to have a great payment history.
It important to ask what lenders the account holders have credit card accounts with. This is because some lenders may not report authorized user accounts to the credit bureaus. The best way to determine whether or not a lender reports authorized users to the credit bureaus is to pay attention to what the lender asks.
The Bottom Line
Authorized user accounts can work for anyone as long as you follow the guidelines. It is important that you make sure the authorized user account will report to your credit history and that the lender has your social security number to report the account to credit bureaus.