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Authorized Users on Credit Cards: A Silver Bullet

Guest blogger Philip Tirone explains the power behind authorized users on credit cards.

It stands to reason that credit scores fall in tandem with a struggling economy. In fact, more and more people are asking me to teach them how to build credit after a financial disaster.

The facts of bankruptcy, foreclosure, and repossession are clear: Unless you embark on a strategic plan to build your credit, you will pay higher interest rates on future loans. With more and more employers conducting credit checks, you might be turned down for a job. In some states, you might even pay higher insurance premiums.

I always tell people who have suffered a severe financial crisis that one of the first strategies they can use is to become authorized users on credit cards. In some ways, authorized users are a lot like joint users. Authorized users on credit cards can make charges. Like joint users, authorized users are often reported to the credit bureaus.

But unlike joint users, authorized users on credit cards do not need to qualify for a credit card. If your wife has a Visa card, you can become an authorized user simply by having your wife call the credit card company and ask to add you as an authorized user. The credit card company will then add your name to the account, even if your credit score is dismal.

Becoming an authorized user will quickly raise your credit score by allowing you to “borrow” the account holder’s clean credit history. Your score will increase so long as the account stays in good standing. The flipside, of course, is that your score will drop if the account holder makes a late payment.

To most effectively use this strategy, keep three things in mind:

1. Not all authorized users on credit cards are reported to the credit bureaus.
2. Choose the account carefully.
3. Shelter the account holder.

Authorized Users and the Credit Bureaus

In years’ past, some shysters preyed on people with poor credit by selling them authorized user status. The account holder and authorized user might be complete strategies who came together for mutual benefit. The account holder got compensated with money; the authorized user saw his or her score increase.

You might guess that the credit-scoring bureaus didn’t like this arrangement, as it was not an accurate method of determining whether a person is creditworthy. They changed the rules so that only authorized users on credit cards who are related to the account holders will see their credit scores change due to an authorized user account.

Therefore, be sure you choose an account holder who is also a relative. Try to choose someone with the same last name and address. Otherwise, the credit-scoring bureaus might not recognize your status as an authorized user, and your credit score might not improve.

To make sure that the credit card company is reporting your status as an authorized user, call them and ask. You can also check your credit report to see if the account is appearing. If not, choose another account holder.

Choosing the Account Carefully

If you become an authorized user on an account that becomes delinquent, guess what happens? Your score will drop. As such, be sure to pick an account with a clean history of payments. Be sure, too, that the balance on the card stays low—preferably about 30 percent of the limit. If the balance exceeds 30 percent, or if the account holder makes a late payment, you should immediately remove your name as an authorized user so the negative information does not hurt your credit score.

Sheltering the account holder.

Fearful that you will rack up huge charges you cannot or will not repay, your family members might not want to add you as an authorized user. To stop this from happening, let the account holder know that she or he can be protected from such behavior by making sure that you cannot use the account.

1. First, the account holder should shred the credit card that arrives for you.
2. Second, the account holder should refuse to give you access to the account by shielding the account number and credit card expiration date.

In this way, your credit score will increase while still protecting the account holder from any irresponsible behavior on your part.

The good news is that authorized users on credit cards usually see a quick jump in their score. After twelve or eighteen months, you might be able to remove yourself from the account and qualify for loans on your own.