Having a short or non-existent credit history can make life difficult. From buying a car to applying for an apartment, your credit report is a pivotal factor in whether you’re approved for a loan and what interest rates you’ll get. If you’re without credit, you may have to put down hefty deposits, cope with high-interest rates, or need a co-signer.
Building credit is essential to building a stable financial future. When you’re just starting out, becoming an authorized user on someone else’s established credit card can give your credit a boost. By tapping into the good credit of a parent or spouse, you’ll begin to build a credit history. Meanwhile, the primary user on the account can monitor your spending and perhaps earn extra cash back or travel rewards for your purchases.
But before you go ahead and ask someone to add you to their credit card as an authorized user, make sure you think through all of the ramifications.
Be aware of the risks to your relationship
When you are added as an authorized user, you typically have access to the primary user’s entire credit line. If they have a good income and long credit history, that means you may have a credit limit as high as $20,000 or more. You’ll receive a card in your name and can use that card as you will.
But it’s important to realize that authorized users are very different than card co-signers or joint cardholders. As an authorized user, the credit card company doesn’t consider you liable for the charges—the primary user is.
If you go on a shopping spree and don’t pay up yourself, the main user is on the hook for the payments and any interest charges or late fees that accrue. If you run up a balance or miss a payment, that will hurt the primary user’s credit history and finances, as well as sabotage your efforts to establish good credit. Worse, doing so could clearly hurt your relationship, so use the card judiciously and pay up in full each month.
It may help to have an open conversation with the primary account holder about how you’ll use the credit card as an authorized user. You might decide together that the card is only for emergencies, such as if your car breaks down on the side of the road. Or perhaps you can use it for essentials like gas and groceries while you’re in school.
Make sure you’re both clear on what they will pay for and what you will need to cover. For example, if your parents are willing to cover the cost of your school textbooks, they can make the payments on the account for you. But if you use the card to buy concert tickets, discuss in advance how you’ll pay them back and when, such as letting them know that you’ll send a check to them before the credit card statement date.
By talking about what spending behavior is acceptable and what is not, you’ll both be on the same page about what’s appropriate and avoid any misunderstandings, hurt feelings or fees.
Ask yourself: How good is the primary user’s credit?
When you’re added as an authorized user, you’re associated with that person’s credit habits. If your parents, for example, have a great history and have never been late on a bill, your credit will get a good bump because of their good behavior.
But if they have missed payments or have been habitually late, you can get dinged too, even if you pay your bill on time each month. Your credit score may even drop as a result of the account holder’s usage. If you suspect becoming an authorized user on someone else’s account might be too risky, consider other ways of building credit such as a credit builder loan or a secured credit card.
Double check that you’re getting credit
Not all credit card issuers report all information to the credit bureaus; they are not required by law to do so, so it’s up to individual companies to decide what they will or will not report.
Even if the primary account holder adds you as an authorized user and has a spotless credit history, if the credit card company doesn’t report authorized users’ activity, it won’t help your credit history at all. Before requesting that you be added to the account, check with the issuer to ensure that they report authorized user activity to all three credit bureaus.
There are significant costs that come with working with the credit bureaus, so smaller banks and credit unions may not report authorized users to them. Most often, the credit card issuer will ask for the authorized user’s date of birth and Social Security number prior to issuing the additional card. Asking for this information is a good sign that they will report the user’s usage to the credit bureaus. If the bank does not ask for a Social Security number of the authorized user, the account likely won’t be reported.
Becoming an authorized user can be a smart way to build credit in your own name without a lot of risks. But being included on someone’s account comes with unique responsibilities and liabilities. Make sure both you and the primary account holder understand what you’re getting into before you’re issued a card.