Posted 23 March 2023
Authorized Users: Benefits and Pitfalls
Do you keep receiving denials every time you try to open a credit card? Some people have trouble being approved for their first line of credit because they don’t yet have a borrowing history or because they’ve struggled in the past with maintaining what was given to them. In these instances, being an authorized user on an existing credit card can be a big help. If the primary account holder uses the card responsibly, your score can benefit; no application approval needed. Still, there are a few things to consider before adding yourself or someone else as an authorized user to a credit card account. Let’s go over some of the advantages and potential pitfalls.
Becoming an authorized user can help your own and the primary account holder’s financial situation. It grants you access to a line of credit you didn’t need to apply for, which can be especially helpful if you’re having trouble being approved. If the primary cardholder makes on-time payments and both parties maintain low balances, everyone’s credit score could be positively impacted. Having access to a credit card may not only help build your score but also give you a lifeline in the event of a financial emergency, which may aid you in feeling more financially secure.
Your card use might also earn the account holder rewards based on the type of card they have. Primary cardholders may earn points, cashback, or other incentives, giving them more beyond the simple good deed of adding you to their account. To ensure the most benefit for all involved, have a conversation before adding an authorized user privilege.
Although authorized users and their grantors can mutually experience advantages, there are also potential pitfalls to be aware of. Since the primary user is the only one responsible for making payments, it’s important that both parties agree how the card is to be used. When you are the primary user, before adding someone to your account, have a conversation to discuss expectations and consider how receptive the other person is to feedback. Feel empowered to say “no” if you feel granting authorized user rights could jeopardize your credit score, budget, or relationship with the other party.
Those seeking to become an authorized user should also be selective of whom they request this privilege. It’s important that the primary cardholder you choose has a good relationship with credit, prioritizing on-time payments, and maintaining low balances. If they don’t, this could damage instead of help your credit score. It’s also important to know any rewards earned under the account are solely the primary cardholder’s and are not accessible to you. Before agreeing to be added as an authorized user, have a conversation about these details to keep expectations clear.
Good to know
As you’re weighing out the pros and cons surrounding authorized usership, it’s good to keep a few things in mind. If the relationship isn’t working out, the authorized user can be removed from the account. Either the primary account holder or the authorized user can initiate this action. It also isn’t required that the primary cardholder give the authorized user a physical card. This could be a good compromise if both parties agree that establishing a positive credit score is the main goal and having purchasing power is not a necessity. Some credit unions or banks may also have the ability to lock or limit card usage.
Before opening an authorized user account, have a conversation with your financial institution to learn what features are available to you and ask additional questions. Some credit unions and banks will only report authorized user activity to credit reporting bureaus under certain criteria, such as if you are the spouse of the primary account holder. In this case, if you are an authorized user under your parent’s account, using the card may not help you establish a score.
It’s also important to know that although becoming an authorized user may improve your credit score, you may not yet qualify for large loans. There are a number of variables a financial institution considers when determining loan approvals, so be sure to talk to your credit union or bank representative about your overall financial goals to create a good plan.
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