AUTHORIZED USER ACCOUNTS
One of the most widely practiced methods used to improve credit scores fast is being added to someone’s credit card as an authorized user.
Usually, the person that would add you, would be a relative or close friend. This tactic is still very effective in terms of improving your credit scores fast.
I will break down how and why authorized user accounts can improve your credit scores. Now, there are limitations to this method and I will cover that as well.
First, let’s define what an authorized user account is.
An authorized user account is a credit card you have been added onto by the primary cardholder.
HOW DOES ONE BE ADDED AS AN AUTHORIZED USER?
It’s really simple. You find a person, like a family member or close friend and ask to be added to their credit card, or credit cards.
They agree, and call their credit card company and request you be added as an authorized user.
Then, they will be asked to provide some of your personal information, such as your full name, social, and date of birth.
A new credit card with your name on it will be mailed to your friend or family member (primary cardholder) and the payment history of this card will be reported onto your credit profile the following posting date.
WHY DOES IT HELP IMPROVE CREDIT SCORES?
Once the authorized user account is reported by the creditor to your credit report you will receive the credit card’s complete payment history, and it’s current credit utilization.
With payment history being 35% of your score, and credit utilization being an additional 30% of your score, you can see why authorized user accounts improve credit scores almost immediately.
Payment history is self-explanatory, it’s your record of paying back debt. Each credit account you have on your report will show month by month your payment history.
It will show if you have paid on time or if you have paid late by 30 days or 60 days and so on.
Credit utilization is a ratio that is calculated by the balance on a credit card divided by the credit limit.
For example, a credit card with a $300 balance divided by a $1,000 credit limit would equal a 30% credit utilization rate.
When looking for the right credit card to be added onto, make sure the last 24 months of payments have been made on time, and that the credit utilization is at or under 30%.
If the payments have not been paid on time in the last 24 months, and/or the credit utilization is over 30%, the credit card can lower your credit scores and defeat the purpose of being added as an authorized user.
AVOID BAD CREDIT CARDS
A bad credit card is a card that has late payments, a high credit utilization, and not enough payments made on it.
AVOID CARDS WITH LATE PAYMENTS
A late payment negatively affects your payment history, when being added as an authorized user, the payment history of that credit card reports to your credit report.
Late payments can cost you up to 120 points, you do not want to add a credit card with late payments on it within the last 24 months.
Credit scores are designed to focus on consumers last 24 months, therefore, the trailing 24 months of activity are weighed more heavily than activity that exceeds 24 months.
That means you have to make sure the credit card’s payment history is flawless.
AVOID CARDS WITH HIGH BALANCES
A credit card with high balances raise your credit utilization ratio.
If the credit utilization is too high, meaning over 30% utilization, then your score will most likely drop tens of points.
When the utilization is high, you owe more money and it creates a situation where you owe more money than the amount of available credit you have.
This makes you a high risk for delinquency in the eyes of creditors and FICO.
Although, as an authorized user, you are not responsible and have no liability for the debt on the credit card, only the primary cardholder has that obligation.
The debt you do not have to worry about, it’s the damage that can be done to your credit score that’s the problem.
Make sure the credit utilization is low, at or below 30%, ideally 1%-3%.
AVOID CARDS WITH LIMITED PAYMENT HISTORY
When selecting the right credit card to be added to, it’s also important that the card has at least six months of payments on it.
For best results, look for cards that have at least 24 months of “paid as agreed” payment history on it.
When a credit card has 24 months or more of payments on it, it will be considered a seasoned line of credit. That’ what you want.
The longer the payment history, the more points you will score, this will score you points on your “Length of Credit History” factor, which makes up 15% of your credit scores.
LIMITATIONS OF AUTHORIZED USER ACCOUNTS
As mentioned earlier in this post, there are limitations to authorized user accounts.
The obvious problem is that you have no control over what the primary cardholder does with the credit card.
They can hurt your credit score if they miss a payment and pay late by 30 days or more, damaging the payment history.
Or, they could spend a lot on the card and raise the credit balance too high and affect credit utilization.
The other limitation is the new scoring models that may or may not factor in authorized user accounts.
Specifically, the home loan scoring models have been adjusted to reduce the chances of lending to risky borrowers in an effort to avoid another housing crash.
After the “Great Recession”, the credit bureaus and scoring companies such as FICO had to create new guidelines/requirements for home loan lending.
One of their solutions was to limit the effects of authorized user accounts. You can no longer just have authorized user accounts and qualify for home loans.
Now, you must have primary accounts as well. For car loans, you can still only have authorized user accounts in most cases.
CONCLUSION
Using an authorized user account is one of the best ways to improve your scores fast. Even with the limitations, it is well worth it to add these accounts to your credit reports.
It is perfectly legal, and very much effective.
It’s important that your friend or relative understands that adding you to their credit card will not hurt them at all.
You will not have access to their account at all, nor will you have the credit card, they will.
Remind them that you are only asking to be added for purposes of improving your credit scores.
I hope this has been helpful.
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