The Magic of Authorized Users
One of my favorite ways to boost a person’s credit score is to teach them about the magic of authorized users. Authorized users are people who have permission to use other people’s credit cards. For instance, your husband might have a Citi card. His name, and his credit score, was used to apply for the account, but you have permission to use the account.
Becoming an authorized user is a powerful way to boost your credit score because you get to borrow the account holder’s good credit history. If you are an authorized user on a credit card in good standing, your credit score will reflect the credit card’s positive payment history by increasing. Beware, though: If you are an authorized user on a credit card in poor standing, your credit score will reflect the credit card’s negative payment history by dropping.
Keep in mind, however, that you must do three things to benefit from becoming an authorized user:
- Make sure that the credit card company reports your status as an authorized user to the credit bureaus.
- Protect yourself by finding the right account.
- Protect the account holder.
Let’s consider these one at a time.
Make sure that the credit card company reports your status as an authorized user to the credit bureaus.
In the past, people abused the power of authorized users, sometimes going so far as to buy authorized user status on a complete stranger’s account so that their credit scores would increase. The credit-scoring bureaus didn’t take too kindly to this, so they changed the rules. Now, they only consider authorized users if they are legitimately related to the account holder. In a best-case scenario, you would share a last name with the account holder, and you would live at the same address. At a minimum, make sure you are a relative of the account holder. Otherwise, the credit-scoring bureaus will not recognize your status as an authorized user, and your credit score will not improve.
Finally, make sure the account holder asks the credit card company if they report authorized users to the credit bureaus. Some do, but some do not. If the credit card company does not report your information to the bureaus, find another credit card.
Protect yourself by finding the right account.
As I mentioned earlier, your credit score could drop if you become an authorized user on a credit card that is not in good standing. The account to which you are added should have a credit card payment history that is clean. It should also have a credit card balance that never exceeds 30 percent of the credit limit. And if the account holder ever defaults on a payment or causes the balance to exceed the 30 percent threshold, remove your name immediately!
Protect the account holder.
It stands to reason that most authorized users have poor credit, or they would qualify for credit cards on their own. So it also stands to reason that your family members will probably be hesitant about giving you permission to use a credit card. What if you do a little retail therapy and then refuse to repay the debt?
Ensure the account holder that there are ways for you to benefit from authorized user status without actually being able to use the account. For instance, the account holder can shred the credit card that arrives for you, and they can refuse to give you access to the account number. In this way, you will benefit from the credit card’s positive history and create a layer of protection for the account holder.
As well, let the account holder know that your credit histories will not be merged. Your past credit mistakes will remain yours and yours alone. Only accounts that are shared will be reflect on each credit report.
When used correctly, authorized users can see their credit scores jump as many as 50 or 60 points just by being added to the right account. For this reason, we use authorized users to help people with credit repair after bankruptcy, foreclosure, or other financial meltdown.