If you are just starting out in your financial journey — or have lackluster credit — building credit can seem impossible. How do you establish a credit history when you can't even get approved for a loan or a credit card?
Adding yourself as an authorized user on someone else's credit card could help to build and establish your credit.
However, there are some important factors to consider since becoming an authorized user can actually hurt your credit score if you're added on an account that is not in good standing. Therefore, it is important to carefully consider all sides of this process to find out if it is right for you.
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An authorized user is someone who is permitted to use another person's credit card. Once the original cardholder signs off on the authorization, the authorized user gets a card in their name that is linked to the original cardholder's account. The authorized user will likely not receive a monthly statement for the credit card. However, some credit cards can break out spending made by the authorized user within the balance statement so the cardholder can understand which charges were made by whom. Authorized users are typically family members, legal guardians or trusted individuals of cardholders, but anyone can become an authorized user on another's credit card. Legally, there is no minimum age to gain authorized user status, yet most banks have their own minimum age policies regarding authorized users. Authorized users will be subject to the credit limit on the card, and the original cardholder may set spending limits for the authorized user if their bank or issuer allows it. The original cardholder is ultimately liable for charges incurred by an authorized user on their card. A credit check is not required to become an authorized user on someone else's card. Yet banks and card issuers will often report the full payment history of the card, including the names of each individual card user, to the three main credit bureaus: Equifax(R), Experian(R) and TransUnion(R).What is an authorized user?
Who can be an authorized user?
What is the minimum age to be an authorized user?
Do authorized users have spending limits?
Do authorized users have to pay credit card bills?
Will my credit be affected as an authorized user?
That's how the authorized user approach serves as a credit building tactic. You don't need good credit (or any credit) to become an authorized user, but if the bank or issuer reports your card's full on-time payment history to the credit bureaus, you can begin to build a positive credit history.
How to build your credit as an authorized user
To build your credit history as an authorized user, consider these three details:
- Request to be added: Ask a friend or relative with good credit to add you as an authorized user. This can be requested by contacting the main account holder's bank or credit issuer. Not all banks and card issuers provide authorized users' card payments to the credit reporting bureaus. Before you go through the approval process, check with the main account holder to confirm that your payment history will get reported.
- Focus on a payment plan: The primary cardholder is responsible for paying the bill, but any missed or late payments will appear on both parties' credit reports. Be sure to communicate with the main account holder to ensure there is a secure payment plan in place to avoid late or missed payments that could hurt both the main account holder and authorized user.
- Work closely with the main account holder: It's important to avoid putting a strain on their card's credit limit. Be sure to arrange spending limits that can accommodate a shared card account, without damaging the primary owner's credit utilization ratio. This is the ratio between the total balance you owe and your overall credit limit to see how much credit you are using. Remember that the authorized user doesn't have to use the card to benefit from the good credit behavior of the original cardholder.
Is an authorized user the same as a co-signer?
While being added as an authorized user is not the same as earning credit card approval through a co-signer, they are both options to start your credit history if you have little to no credit. There are some important differences between getting added to a card as an authorized user or signing up for a card with a co-signer:
Co-signer
Does this
method
require a
credit
check?
get a
card in
your
name?
Who is legally
liable for paying
credit card debt?
Will payment
history be
reported to the
credit bureaus?
Getting added to a
credit card as an
authorized user
Yes
Cardholder
Usually
Earning credit card
approval with a
co-signer
Yes
Yes
If cardholder cannot
pay, co-signer is
legally liable for full
payment
Yes
How to get added as an authorized user
Ideally, you will find a close relative with excellent credit who is willing to add you as an authorized user.
In order to get added as an authorized user on someone else's credit card, the cardholder will need to contact their bank or card issuer and request that you be added to their card account. They will need to provide some basic information to confirm your identity, as well as your name, Social Security Number, date of birth and contact information.
If the cardholder's request gets approved, you will receive a credit card with your name on it that is connected to the original cardholder's account. That person may opt to set spending limits on your card, depending on whether the bank allows it. Be sure to work with the main account holder so that you can be aware of any rules regarding card usage and specifics regarding payment reimbursement.
Building your credit the smart way
Being added as an authorized user on another person's card may help you establish a credit history or build your credit. Yet cardholders and authorized users' on-time, late or missed payments will be added to both parties' credit reports, so it's important that cardholders and authorized users see eye to eye. Be mindful of the following as you consider whether to get added as an authorized user:
- Confirm with the account holder that the card's full payment history will get reported. They may need to check with the credit issuer or credit reporting agencies to confirm.
- Work together to maintain the card account in good standing. Don't spend more than you are able to reimburse (if this is part of the agreement) the main account holder.
- Agree to a spending limit and plan to ensure that the main account holder is able to make consistent on-time payments. This payment history is one of the factors that can contribute to an increased credit score for the authorized user.
- Manage the card's total utilization by keeping your credit card debts low.
As you begin to build your credit history, your experience as an authorized user can help you improve your credit score, but it can also help you understand how credit is maintained. By proactively engaging with your credit, you can grow your credit score as much as you grow your credit knowledge.