You’ve heard about the risks of making someone an authorized user on your credit card account. But becoming an authorized user yourself isn’t always just a carefree joyride to excellent credit. There are risks – and credit reporting implications – to be aware of.
The main account holder’s behavior can hurt you
As an authorized user, you can do major damage to the account holder’s credit and finances, since the account holder bears all the responsibility of paying the account. But the main account holder’s behavior can damage your credit, too, says Beverly Harzog, credit card expert and author of “Confessions of a Credit Junkie.”
“Let’s say the primary cardholder starts behaving badly,” she says. “This also gets reported on the authorized user’s credit reports.”
That means you don’t just have to worry about your own credit conduct, but about the main account holder’s as well. The behaviors that ding you as an authorized user are the same ones that would ding you on your own account: late payments and high credit utilization.
“When it comes to credit utilization, over 30 percent is not good,” Harzog says. “If it gets to, say, 70 to 80 percent, that’s going to hurt the authorized user.”
There are credit-reporting differences
The whole point of piggybacking on someone else’s credit card is to build (or rebuild) your own credit. Yet the way that account appears on your credit reports (both while you’re a user and after you’ve been removed) and the way it factors into your FICO score may differ from how an account of your own would behave.
For one thing, some issuers may not report authorized user data to the three major credit bureaus. Still, it’s probably safe to say that cards from major issuers will, Harzog says. Assuming the account is handled responsibly, you can expect your credit to improve.
“In general, you’re going to get some boost,” Harzog says. “The question is how much boost.”
And that’s where things can get complicated. Here’s a run-down from FICO, Equifax, TransUnion and Experian about the credit reporting implications of authorized user accounts – and just how much control you have over the account’s presence on your credit reports:
FICO (information provided by spokesman Anthony Sprauve):
- FICO factors an authorized user account into a FICO score differently from an account in your own name. Generally speaking, accounts you’re an authorized user on carry less weight. The specific details, however, are proprietary.
- If you have a mix of authorized user and primary accounts, the authorized user accounts would contribute to your overall credit limit. And the balance on the authorized user account would contribute to the amount you owe. However, while the utilization ratio on an authorized user account does factor into the authorized user’s FICO score, “it wouldn’t carry the same weight as if it were an account where they were the primary user,” Sprauve says.
Even if authorized user accounts carry less FICO weight, piggybacking can still be a fruitful route to pursue, Harzog says.
“If you’re trying to boost your credit, even a little bit is helpful,” she says. “You just have to try everything you can within reason, even if it’s a little boost.”
Equifax (information provided by Meredith Griffanti, senior director of public relations):
- Equifax reports both positive and negative information associated with the authorized user account.
- If the main account holder starts being irresponsible with the account, authorized users can’t request that Equifax remove it (they would need to request that the creditor remove them from the account).
- After the creditor removes the authorized user, the account should fall off the report automatically in 30 to 60 days. If the authorized user disputes the account, it should fall off within 30. Unlike regular closed accounts, authorized user account history does not remain on the report for several years.
TransUnion (information provided by Clifton O’ Neal, vice president of corporate communications)
- Assuming the issuer reports both positive and negative information regarding the account, that’s what your TransUnion report would display.
- If authorized users no longer want the accounts to report, they simply have to “dispute as ‘not mine,’ and the trade line will automatically and immediately be removed and will not show from then on,” O’ Neal says. The user will still be able to use the card; it just won’t show up on the TransUnion report.
Experian (information provided by Rod Griffin, director of public education)
- An authorized user account will remain on your report only if it’s helping you: “An authorized user has permission to use the account, but is not responsible for the debt, so Experian will delete the account from the credit report if it becomes delinquent,” Griffin says.
- Authorized users can request that the account be removed from their Experian reports, and Griffin recommends they also ask the account holder to contact the lender and remove them. After authorized users are removed, the accounts immediately disappear from their Experian reports.
Taking control as an authorized user
Though you can’t control the main account holder’s behavior, any damage should be short lived, as all three major credit bureaus purge the account’s history from your reports quickly, if not immediately after you’ve been removed from the account.
Still, the best thing you can do as an authorized user is vigilantly monitor the account, so you know when you need to jump ship. Any red flags (delinquencies and high credit utilization) will appear in your credit reports. You can get one free report each year from each of the three credit bureaus at AnnualCreditReport.com.
Because most cards from major issuers report to all three bureaus, Harzog recommends staggering your reports (getting a free one from each bureau every four months) to get a full free year of credit reporting. Free credit-scoring websites (such as Credit Karma and Credit Sesame) are another option. Although the scores they give aren’t real-deal FICOs (and are sometimes jokingly referred to as FAKO scores), they’ll let you monitor your active accounts for high utilization and late payments.
“They can help you keep track,” Harzog says. “Even though I don’t pay attention to the score, I look to see if there’s anything unusual.”
If you do need to abandon the account, contacting the issuer should take care of the matter. The account holder can also remove you, and some issuers allow them to do so instantly online. If you go the latter route, “keep it strictly business,” Harzog says.
“You don’t know why this person suddenly became a bad credit card holder,” she says. “Just say, ‘Thank you for your help’ and ask them to remove you. … Don’t ruin the relationship, but disengage from the situation.”
Despite some of the social and credit-reporting complexities involved, an authorized user arrangement can be a helpful leg up for someone who would have difficulty qualifying for a card on their own. While she’s cautious about recommending that friends and significant others add each other to their cards, Harzog says it’s a useful way for parents to help their children build healthy credit futures.
“As long as the primary account holder has excellent credit and the authorized user understands the rules and is willing to abide by them, I think it’s a very good way to boost your credit,” Harzog says.
If you’ve had bad luck with an authorized user arrangement and still need to build your credit, you’ve still got options. A secured card is one, Harzog says, and credit-building loans offered by some credit unions can also help you rebuild your credit solo.