How Authorized Users Impact Credit Scores
Learn how becoming an authorized user affects your credit score and financial profile.
Understanding Authorized Users and Credit Scores
An authorized user is someone who has been added to an existing credit card account by the primary cardholder. This arrangement allows the authorized user to make purchases using the account without bearing legal responsibility for the debt. Understanding how this designation affects credit scores is essential for anyone considering this arrangement or being asked to add someone to their account.
When you become an authorized user, the credit card account’s history typically appears on your credit report relatively quickly. This can provide a significant boost to your credit profile, particularly if you have limited credit history. However, the impact on your credit score depends on several critical factors, including the account’s payment history, credit utilization rate, and whether the credit card issuer reports authorized user activity to the three major credit bureaus: Equifax, Experian, and TransUnion.
How Authorized User Accounts Appear on Credit Reports
For an authorized user account to impact your credit score, the credit card issuer must report that account to at least one of the three major credit bureaus. Not all issuers report authorized user accounts, which is an important consideration before accepting this role. If the lender doesn’t report authorized user activity, the account won’t influence your credit rating at all.
When a credit card issuer does report authorized user accounts, the change can appear on your credit report remarkably quickly. You might see your credit score change as soon as the lender begins reporting that information to the credit bureaus, which can happen in as little as 30 days. This rapid reporting means that both the benefits and potential drawbacks of being an authorized user can manifest relatively quickly.
In recent versions of the FICO Score, authorized user accounts have less impact to your overall score compared to accounts where you are the primary account holder. This distinction is important because it means that while being an authorized user can help build credit history, developing accounts where you are the primary cardholder demonstrates your ability to manage credit responsibly on your own.
Positive Impacts: When Being an Authorized User Helps
Being an authorized user can provide substantial credit score improvements under the right circumstances. Parents frequently add their children as authorized users on credit card accounts specifically to help them build credit early. This strategy can be highly effective when managed properly.
For individuals with credit scores below 550, research shows that becoming an authorized user can result in approximately a 10% rise in credit score within 30 days, with improvements reaching up to 30% after 12 months. This demonstrates the potential power of this approach for those with poor or no credit history.
When the primary account holder maintains responsible credit habits, the authorized user benefits significantly from that positive payment history. Making regular on-time payments, keeping credit utilization low, and maintaining good account standing all contribute positively to the authorized user’s credit profile. An average credit score of 661 for authorized users compared to 657 for non-users highlights the potential benefits of this method when executed properly.
Additionally, when the account has a high credit limit combined with a low balance, this combination can substantially improve the authorized user’s credit utilization ratio, which is a major factor in credit score calculations. Almost half of users see their score jump to 680 or higher, which is considered good credit, by becoming an authorized user.
The Role of Credit Utilization
Credit utilization—your debt compared to your available credit—appears to be the key factor determining whether being an authorized user helps or hurts your credit score. This metric represents one of the most significant variables in the credit scoring equation.
Research examining approximately 5,000 consumers with near-prime credit scores (620 to 659) revealed striking differences based on utilization changes. Among those whose utilization decreased after being added as authorized users, the average credit score rose slightly by three points, from 639 to 642. This modest improvement demonstrates that even slight decreases in utilization can have a positive effect.
The contrast becomes dramatic when examining those whose utilization increased. Consumers whose utilization increased after three months of being an authorized user saw their credit score plunge an average of 34 points, from 639 to 605. This substantial drop is particularly concerning because it can push borrowers from near-prime credit into subprime territory, significantly altering their ability to obtain loans and the terms they receive.
Why Some Authorized Users Experience Score Declines
Being added as an authorized user doesn’t guarantee a credit score boost, and for many people, it can actually damage their credit. From the month before they were added as an authorized user to three months after, consumers with near-prime credit scores saw their scores decrease an average of 18 points—from 639 to 621. This decrease pushes them to the edge of the subprime credit range, which can significantly alter their ability to get loans.
A primary reason for these declines relates to how the account is being used. Those who were added to accounts with average utilization of 52.6% and an average credit limit of $3,733 experienced the score declines. In contrast, those added to accounts with just 29.2% utilization and an average limit of $7,694 saw improvements. This 23.4-point difference in utilization rates clearly demonstrates the serious effect these differences can have on credit scores.
The account holder’s payment history also matters significantly. If the primary account holder has an imperfect payment history—perhaps they’ve missed a payment or two in the past—that negative information will be reflected on the authorized user’s credit report and hurt their credit score. Similarly, if the primary account holder has a higher-than-recommended utilization rate, meaning their debt is too large a percentage of their available credit, this can damage the authorized user’s credit.
Whom You Align Yourself With Really Matters
Analysis of credit data reveals that many authorized users made their situation worse from the start by poorly choosing the account holder with whom to align themselves. This selection process is critical and warrants careful consideration.
Before becoming an authorized user, investigate the primary account holder’s credit habits. Ask questions about their payment history, current credit utilization, and overall credit management approach. Ideally, the primary account holder should have:
- A history of on-time payments with no recent missed payments or delinquencies
- Low credit utilization rates, typically below 30% of available credit
- A high credit limit that provides substantial available credit cushion
- Consistent, responsible credit card usage patterns
These factors collectively determine whether the authorized user arrangement will be beneficial or detrimental to your credit profile.
Building Credit as an Authorized User
An authorized user builds credit when the credit account holder maintains responsible credit habits that help a credit score grow, such as making on-time payments and paying off balances in full. This passive approach to credit building requires trusting that the primary account holder will use the account responsibly.
For younger individuals or those with limited credit experience, this technique can help establish credit history effectively. Payment history is a big part of your FICO Score, making on-time payments very important. By being associated with an account that demonstrates consistent on-time payment behavior, authorized users can quickly build a positive payment history.
However, it’s important to note that authorized user accounts have less impact than primary accounts in recent FICO Score versions. Therefore, while being an authorized user can help build credit history, developing credit accounts where you are the primary account holder remains important to demonstrate that you can manage credit responsibly on your own.
Important Risks and Considerations
There are always risks involved with being an authorized user that deserve careful consideration. First, being an authorized user might not impact your credit score at all if your credit card issuer doesn’t report authorized user activity to the credit bureaus. This means the arrangement could provide no benefit whatsoever.
Second, even if the issuer does report the account, should the main cardholder start to utilize the card irresponsibly, authorized users can suffer substantial credit score damage. If the account holder makes late payments, maxes out the card, or otherwise mismanages the account, these negative behaviors will appear on your credit report and damage your credit score.
Third, as an authorized user, you are not legally responsible for the debt on the account. However, if the account becomes delinquent, you can request to be removed as an authorized user, and the account should be removed from your credit report. This option provides an exit strategy if the primary account holder’s behavior becomes problematic.
Removal Options and Credit Preservation
If you become an authorized user and the account begins being managed irresponsibly, you have options to protect your credit. You can request to be removed as an authorized user from the card. Once removed, the account will typically be removed from your credit report, preventing further damage.
However, the removal process typically takes time. The derogatory marks that accumulated while you were an authorized user on the account may remain on your credit report for a period following removal, as they become part of your credit history. Therefore, acting quickly when you notice the primary account holder beginning to mismanage the account is important.
Does Being an Authorized User Affect the Primary Cardholder?
An important point to note is that the primary account holder’s credit scores will not be affected by adding you as an authorized user, even if you misuse the card. The credit card issuer does not run a hard inquiry on the authorized user, so their addition to the account won’t cause any initial credit score dip.
However, if the authorized user makes charges that increase the account’s utilization rate or if they make purchases that result in late payments being applied to the account, these actions will negatively impact the primary cardholder’s credit score. Therefore, primary cardholders should be equally cautious about who they add to their accounts.
The Bottom Line for Authorized Users
Being an authorized user can be an effective tool for building or improving credit, but success depends on several critical factors. The account must be reported to credit bureaus, the primary account holder must have responsible credit habits, and the account should feature low utilization rates and high credit limits. When these conditions are met, authorized users can see meaningful credit score improvements in as little as 30 days.
Conversely, if any of these conditions are not met, becoming an authorized user can damage your credit more than help it. Carefully evaluate the primary account holder’s credit habits and the account’s characteristics before agreeing to this arrangement. If you’re already an authorized user and the account is being mismanaged, don’t hesitate to request removal to protect your credit profile.
Frequently Asked Questions
Q: How quickly can being an authorized user impact my credit score?
A: Credit score changes can occur as soon as 30 days after the credit card issuer begins reporting authorized user activity to the credit bureaus. However, some changes may take slightly longer depending on the issuer’s reporting schedule.
Q: Can being an authorized user hurt my credit score?
A: Yes, being an authorized user can hurt your credit score if the primary account holder has high credit utilization, missed payments, or poor credit habits. Research shows that some authorized users experience average score declines of 18 points or more.
Q: Do all credit card companies report authorized user accounts?
A: No, not all credit card companies report authorized user accounts to the credit bureaus. If your issuer doesn’t report authorized user activity, being an authorized user will have no effect on your credit score.
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