Does having someone as an authorized user help their credit?
Credit scores are a crucial factor in determining one’s financial health and the ability to access loans and credit cards. One question that often arises is whether having someone as an authorized user on a credit card can help improve their credit score. The answer is nuanced and depends on various factors, including the credit habits of the authorized user and the overall credit history of the account holder.
Understanding the Role of an Authorized User
An authorized user is someone who is allowed to use a credit card account but is not the primary account holder. This person’s credit activity is reported to their own credit file, which can potentially affect their credit score. However, the impact of being an authorized user on one’s credit can vary significantly.
Benefits of Being an Authorized User
1. Building Credit History: If the authorized user uses the credit card responsibly and pays the bills on time, their credit score can benefit from the positive payment history. This is particularly useful for individuals who are new to credit or have limited credit history.
2. Establishing Credit Mix: Credit scoring models consider different types of credit, such as revolving credit (credit cards) and installment loans. Having an authorized user account can help diversify the credit mix, which may positively impact the credit score.
3. Access to Credit Limit: The authorized user gains access to the credit limit of the primary account holder, which can be helpful if they need to establish a higher credit limit for future credit applications.
Drawbacks and Considerations
1. Negative Impact of Poor Credit Habits: If the authorized user has poor credit habits, such as late payments or high credit utilization, these negative actions will also appear on the primary account holder’s credit report, potentially lowering their credit score.
2. Limited Control: The primary account holder has control over the authorized user’s access to the account, but they cannot control the authorized user’s spending habits or credit behavior.
3. Credit Score Reporting: The credit reporting agencies may not always report authorized user activity in the same way, so the impact on the authorized user’s credit score may vary.
Conclusion
In conclusion, having someone as an authorized user on a credit card can potentially help improve their credit score, especially if the authorized user demonstrates responsible credit behavior. However, it is essential to be aware of the potential drawbacks and to choose an authorized user who is likely to use the credit card responsibly. Ultimately, the decision to add an authorized user should be made with careful consideration of the potential impact on both parties’ credit scores.
