When consumers have no credit of their own, a family member or good friend who has established credit can really help the consumer out by adding the consumer as an Authorized User on their existing accounts.
These can raise the score as high as 40 points to the credit score.
With an Authorized User account showing on the consumer’s credit report, he or she automatically gets the benefit of a positive account with a long-established relationship, good payment history, and hopefully a good utilization on the card.
The owner of the account has to ask their creditor these things:
- If the company actively reports to all 3 Credit Reporting Agencies.
- If the company actively reports Authorized User accounts.
The owner’s account must meet these criteria:
- Long established a relationship with the creditor, it would be nice if the account was more than 10 years old.
- Perfect payment history, the owner has never been late on the account.
- Good utilization, meaning that the balance on the card is either zero balance or below 30% of the overall credit limit.
Responsibilities of the Authorized User being added to the account:
- This is not your card, the family member or friend is doing you a favor. Give the extra card mailed to you back to the owner. You don’t want to use the card and risk incurring debt that can’t be paid, thus putting the owner of the account in a tough spot, having to come up with the money out of their pocket to cover the debt. It is not worth losing a friendship or a falling out with a family member. The consumer is not responsible for the debt, so the lender would solely be trying to collect unpaid balances from the owner of the account.
- The consumer only needs to be actively added to the account long enough to establish his or her own credit, once that is accomplished – the consumer needs to contact the owner of the card and ask them to remove them from the account. The lender will update the Credit Reporting Agency that the consumer’s relationship to the account has been terminated. This will not cause the account to be removed, just updated as terminated.
- Termination of the relationship is for the consumer’s own good, it is better to be removed while the account is in good standing. Then to hold on to it and risk later that the owner of the account defaults. This will affect the consumer’s credit score. The consumer can dispute with the Credit Reporting Agency that they want the account removed because they are not the account holder, but it will be too late as far as the score is concerned.
There has been in the recent years talk from the Credit Industry about severing the benefits of Authorized User accounts from contributing to the consumer’s credit score.
As of yet, I have not heard of this policy taking effect, but now some banks have decided not to report Authorized User accounts, so it is important to check with the lender before going forward to be added on one of these as an Authorized User.
Remember just be careful, respect the owner of the account and remove once the account is no longer needed.