Gaining authorized user status on someone’s credit card account can benefit both parties, especially parents and their children.
It can help build a credit score for the authorized user if they have a short credit history (or none at all) while also assisting parents in establishing credit for their children when they no longer live at home.
Having a better score can help young adults get better credit card terms, lines of credit, and countless other benefits from having beefed-up credit reports once they leave home.
Unfortunately, there are also drawbacks in this process like any other in life: increased responsibility and the potential to negatively impact your child’s score if you fail to pay your credit cards on time as the primary cardholder.
This article will discuss when to consider adding an authorized user, credit score implications of becoming an authorized user on someone else’s credit card account, and other considerations.
What is an Authorized User?
By becoming an authorized user on someone else’s credit card—be it a parent, guardian, or other trusted adult—the credit card issuer will send a credit card to the primary cardholder having your name appear on the card.
The credit card company holds the person who signed up to be the primary account holder responsible for paying charges on their account.
If an authorized user on an unsecured card makes purchases but doesn’t pay toward the balance, they are not responsible for repaying the balance.
Before getting an unsecured card and being added as an authorized user, make sure you and the primary account holder have agreed on whether or not to use the card you receive.
Further, you should determine this ahead of time because any charges that you make will be their legal responsibility, even if you agree to pay them.
Credit card issuers report your balance and payments every month to credit bureaus. So, even if you don’t receive a physical card, it affects your credit in the same way.
If you don’t meet the requirements for credit cards on your own, having an authorized user status on the account of a cardholder might be beneficial to your credit history and “payment history,” a credit scoring component.
It may cut the time it takes to get a FICO score—one of the most common credit-scoring models—down to less time if you don’t already have one used by credit reporting agencies to mark your creditworthiness. Further, it might also get credit cards in your hands sooner than later.
How Does Being an Authorized User on a Credit Card Work?
Authorized users don’t hold responsibility for paying the balances due on credit cards, meaning when you become an authorized user, it has a limited effect on your credit.
Though, if you’ve got no history with a card issuer or any other line of credit to your name, serving as an authorized user can lend some support to building your credit file.
If you are a parent, adding a child as an authorized user to your cards is a significant first step to establishing their credit history.
If you’re not living at home and have a thin credit history, you might consider asking someone you can trust with good credit to add you as an authorized user to their accounts.
Asking for help might not be your first choice, but it can be a way to start working up to other lines of credit like mortgages, home equity loans, and other types of consumer credit. Consider asking someone with a clean payment history, high spending limits, and a long account tenure.
Further, once you find primary cardholders willing to help, make sure the credit card issuers report authorized user status to the credit bureaus.
After all, while this might make sense on paper, if companies like Experian, Equifax, and TransUnion never see that paper, it won’t help you build credit.
As a special note, just having authorized user status on one or several cards and credit reports might not boost your score.
This means you won’t necessarily have a higher score that could get you a more advantageous interest rate on mortgages, personal loans, refinanced student loans, or other forms of credit.
Instead, lenders running a credit check will want to see a more diverse credit history, which means having credit accounts held in your name that you’ve demonstrated responsible management over.
Without a doubt, if you serve as the primary cardholder on credit accounts and not just an authorized user, this will serve as a more reliable indicator of your creditworthiness in the eyes of a lender.
If you can’t directly get approved for an unsecured card under your name, you can supplement your authorized user strategy with other options to build your credit:
- Apply for a secured card.
- Apply for a credit builder loan.
- Apply for services like ExtraCredit or Experian Boost, which incorporate payment history for rent or your cell phone expenses.
What are the Pros and Cons of Being an Authorized User?
Authorized User Pros
- Being an authorized user can help a person build or restore their credit if they get added as an authorized user on a credit card of someone with an excellent (or better) credit history.
- The primary cardholder remains fully responsible for all credit card charges, payments, and liability.
- Adding an authorized user account doesn’t cost money in most cases.
- Credit history as an authorized user gets reported to all three credit bureaus, improving credit scores over time if the primary cardholder makes card payments on time to the credit card issuer.
Authorized User Cons
- You can remove an authorized user from the credit card account at any time.
- You can negatively impact an authorized user based on poor user activity from the primary cardholder.
- You have no guarantee of an authorized user seeing a quick credit improvement—if at all.
Do Debit Cards for Kids Help Build Credit?
Despite a prepaid debit card having the same look and feel as a regular credit card, these cards don’t help build your credit as a credit card can.
For an account to impact your credit scores, it needs to count as debt or liability. To build good credit, you need to make regular payments on these debts over long periods. This factor plays the most significant role in building your credit.
A prepaid debit card, on the other hand, works like a regular debit card where you load the card with money (or, in the case of a debit card issued by a banking app or institution, have a balance in your account) and draw on the funds when you make purchases.
You can use a prepaid card like a credit card, but it won’t necessarily build credit like one. Some debit cards for kids and teens do offer the ability to run them as credit cards when processing payments, acting as a means for building credit history and your credit scores.
Though, for most prepaid cards, even credit cards for kids, because you don’t borrow money, the account doesn’t get reported to credit bureaus and therefore does not affect your credit.
Prepaid cards can come as a debit card and bank account to get you or your children started with banking. Consider options like Greenlight card or goHenry card to get a card into the hands of your children.
What is a Credit Score?
A credit score is a number that predicts how likely you are to repay borrowed money.
It’s a three-digit numerical representation of the information in your credit report, managed by credit bureaus like Equifax, Experian, and TransUnion.
This score ranges from 300 to 850 under the FICO scoring system, with lenders looking at these numbers when deciding whether or not to approve potential loans.
The most critical factor in determining your credit score is payment history, accounting for about 35% of the total. The other most significant factors are amounts owed (30%) and length of credit history (15%).
Balances on different types of loans make up less than 15%, while new account activity only contributes about ten percent.
Building good credit doesn’t happen overnight, as it measures your ability to manage loans and lines of credit wisely and responsibly over time.
- How Old Do You Need to Be to Get a Credit Card? [Minimum Age]
- How Old Do You Have to Be to Have or Open a Bank Account?
What Goes into a Credit Score?
1. Payment History
Making timely payments is essential for your credit score, representing as much as 35% of your total FICO score.
Missing one payment can harm your credit score, though it shouldn’t ruin it entirely.
Why such a significant impact? Lenders want to assess your ability to repay debts promptly, meaning you pay what you agree to pay when you agree to pay it.
Do this consistently and over long periods and you will see your credit score increase.
Because of the outsized importance of this credit factor, staying on top of payment due dates and amounts becomes a necessity to build credit.
Keep track of when payments must go to creditors by setting up automatic payments where possible.
Setting your bills on auto-pay can save not only time for individually initiating each payment but also the headache of being late and dinging your credit score.
2. Total Available Credit / Credit Utilization Ratio
Your credit usage, especially concerning your available credit, can determine your credit rating as well.
The metric used to measure this credit usage, called the credit utilization ratio, is calculated by dividing your outstanding revolving credit balances by your total available revolving credit balances.
This ratio provides valuable insight to creditors about how you use credit.
Lenders want to know how much credit you are using, especially how much credit is available to you.
A high credit utilization ratio (above 30%) will likely hurt your credit score, while a low one (below 20%) may help it or not have any effect at all on your credit rating.
This accounts for 30% of your credit score.
3. Length of Credit History
Lenders want to see how long you’ve had credit and how well you’ve handled while open. This credit factor can determine 15% of your FICO score by evaluating the average age of your open lines of credit.
All things equal, longer average credit histories result in better credit scores.
4. Types of Credit (Diversity or Mix of Credit Lines)
Not only do lenders care about your credit history and your ability to make timely payments (both huge credit factors), but they also like to see a diversity of good credit opportunities you’ve had in the past and maintain today.
This means having several credit accounts, managing your credit limit responsibly, and maintaining an excellent payment history.
Children won’t have many opportunities to have a wide array of credit lines, but they don’t need these just now. Instead, they can start with a single line of credit as an authorized user through a family member’s existing or new credit line.
If teenagers start building credit now, this new line of credit will still help them in the long run so long as the account remains open.
5. Credit Inquiries (New Attempts to Access Credit)
Creditors also want to see how often you seek new credit. Going after financing regularly may indicate an increased risk because you constantly seek new forms of financing to make your finances stay afloat.
Whether true or not, this can still serve as a red flag on your score, potentially hurting your credit if done too often.
These pulls on your credit, called hard inquiries, stay on your report for two years or longer, depending on the type of inquiry.
A child or person with a thin credit file shouldn’t worry too much about this, as any inquiry that hits their report now will likely fall off before they need it.
At this age, the child wants to establish credit and slowly build their credit limit through having wise credit use and more extended credit history.
Can Becoming an Authorized User Offer a Credit Boost?
Becoming an authorized user on someone else’s credit card account is one way to help build your credit score.
An authorized user doesn’t have to pay their share of the balance owed; this remains the responsibility of the primary account holder.
Further, authorized user accounts appear on the credit report of the non-account holder, providing a chance to begin building credit—or even rebuild it if managed poorly in the past.
Using an authorized user status can be the best way to build the authorized user’s credit without opening a new line of credit in their name or pursuing expensive credit repair products and services.
For parents interested in helping their children build a solid credit report, adding them as authorized users to one or more credit cards can result in establishing a credit history to give them a head start.
This can expedite the process of getting them a credit card of their own once they become adults.
In the meantime, you might consider getting your kids accustomed to having plastic in their hands by starting them with debit cards for kids, one of the best ways to start them with banking and managing a budget.
This will be invaluable when the time comes to apply for credit through credit card companies and being the primary cardholder on their own account, instead of just as an authorized user.
About the Author and Site
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this personal finance website as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to help younger generations learn how to invest, manage and plan their money with confidence.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see the disclaimer on my About Young and the Invested page.