Prime Fico

Chapter 1: Understanding What an Authorized User Is

When you’re just starting in the world of credit, getting approved for a credit card can feel like a hurdle. The same is true for getting a loan. Maybe your income isn’t yet at a level that satisfies lenders. Or maybe past financial missteps have left your credit score in disarray, forcing you to essentially rebuild from square one. But fear not, as there are numerous solutions available to you. There are a few things you can try to establish and strengthen your credit history. One such solution is by becoming an authorized user on someone else’s credit account.

In this chapter, we will define what an authorized user is. Plus, we will help you assess if you should be one to improve your credit score. 

Who is an Authorized User?

An authorized user is an individual who is granted permission by the primary account holder to use their credit card or other financial account. This arrangement allows the authorized user to make purchases using the account’s credit line. But the kicker is that they are not legally responsible for repaying any debts incurred. Essentially, it’s like being given access to someone else’s credit card without bearing the full responsibility.

Reasons to Become an Authorized User 

Below are several compelling reasons why individuals may choose to become authorized users of credit accounts.

  • Building or rebuilding credit history: Becoming an authorized user can help individuals with little or no credit history begin building or repairing their credit. When the primary cardholder has a good credit history, it can be reflected on the authorized user’s credit report. This is because credit bureaus report authorized user accounts to credit reporting agencies.
  • Accessing credit when you’re new to credit or have a limited credit history: For individuals who are new to credit or have a limited credit history, becoming an authorized user provides access to credit without the need to qualify for a new account or undergo a credit check. This can be a simpler way to begin establishing a credit history.
  • Learning responsible credit card behavior: As an authorized user, individuals can observe and learn from the credit habits of the primary cardholder. This can help them develop good credit habits and avoid common mistakes that can damage their credit score.
  • Simplifying financial management among family members: Adding a family member as an authorized user can help simplify financial management. This allows the account holder to consolidate family spending in a single account. Ultimately, the process makes it easier to manage a family budget. Additionally, the primary cardholder can set spending limits on the authorized user’s card and monitor the authorized user’s spending.

Distinguishing Between Authorized Users and Joint Accounts

It’s important to differentiate between being an authorized user and having a joint account. While both involve shared access to credit, they operate in distinctly different ways. 

In the case of a joint account, both parties are fully liable for any debts accrued, and their credit histories are intertwined. This means that both individuals’ credit scores can be impacted by the actions of the other. Conversely, with an authorized user status, the primary account holder retains sole responsibility for repayment, and the authorized user’s credit history remains independent.

Who Should Consider Becoming an Authorized User?

Individuals who are looking to establish or rebuild their credit are prime candidates for becoming authorized users. By piggybacking on the positive credit history of the primary account holder, authorized users can benefit from the responsible use of credit without assuming the full risk.

  1. Fresh Graduates and Young Adults: Recent graduates often have limited credit history. They can benefit from piggybacking on a parent’s or guardian’s credit behavior to establish a positive credit profile.
  2. Those with Limited Credit History: Individuals who have recently moved to the United States or have had limited access to credit can benefit from this arrangement. This would also include people who reside in rural areas and other places where they have limited access to financial institutions. This strategy can help them build a credit history more quickly than if they were to apply for their own credit card.
  3. People Who Experienced Financial Setbacks: Individuals recovering from financial setbacks, such as job loss or medical debt, can utilize authorized user status to rebuild credit. 
  4. People with Limited Income: Individuals who have limited income and are unable to afford the high-interest rates associated with secured credit cards can use authorized user status to help them build credit.
  5. Those with Limited Time: Individuals with time constraints can accelerate credit building as authorized users. These are people who are preparing for major life events like purchasing a home or starting a business.

What can you do then?

For those facing the daunting task of building credit from scratch, becoming an authorized user can be a valuable strategy. The same is true for those striving to repair a damaged credit profile. By leveraging the credit accounts of trusted individuals, authorized users can gain access to the credit they need. After, they can demonstrate their financial responsibility and pave the way toward achieving their financial goals.

Why become an authorized user?

In the upcoming chapter, we’ll look into the benefits associated with entering into this type of arrangement. We will discuss why becoming an authorized user can help you build your credit and establish a stable credit history. By understanding the dynamics of credit building and the advantageous position of authorized users, you’ll be better able to forge a path toward financial empowerment and stability.

Next: Chapter 2: Pros and Cons of Being an Authorized User. Here, we’ll explore in depth the tangible benefits and strategic considerations of being an authorized user. Knowing this can unlock the keys to accelerated credit growth and enhanced financial opportunities.