Will adding an authorized user affect their credit score?
Adding an authorized user to a credit card account can be a beneficial decision for both the account holder and the authorized user. However, it is important to understand how this action can impact the credit score of the authorized user. In this article, we will explore the potential effects of adding an authorized user on their credit score.
Understanding Credit Scores
Credit scores are numerical representations of an individual’s creditworthiness, based on their credit history. They are used by lenders to assess the risk of lending money to a person. Credit scores typically range from 300 to 850, with higher scores indicating lower risk. Factors that influence credit scores include payment history, credit utilization, length of credit history, types of credit used, and new credit.
Impact of Adding an Authorized User
Adding an authorized user to a credit card account can have both positive and negative effects on the authorized user’s credit score. Here’s how:
1. Positive Effects:
a. Credit Utilization: If the authorized user has a low credit limit and the account holder has a high credit utilization, adding the authorized user can help lower the overall credit utilization ratio for both parties. This can positively impact the authorized user’s credit score.
b. Credit History: The authorized user will benefit from the positive payment history of the account holder, as long as the account holder maintains a good payment record. This can help improve the authorized user’s credit score over time.
c. Length of Credit History: The authorized user’s credit history will be extended by the addition of the new account, which can be beneficial if the authorized user has a short credit history.
2. Negative Effects:
a. Missed Payments: If the account holder fails to make payments on time, the authorized user’s credit score can be negatively affected, as they will be held responsible for the account’s payment history.
b. Debt Accumulation: If the account holder increases their spending on the credit card, the authorized user’s credit score can be affected due to higher credit utilization.
c. New Credit: Adding an authorized user can be considered a new credit inquiry, which may slightly lower the authorized user’s credit score. However, the impact is usually minimal.
Conclusion
In conclusion, adding an authorized user to a credit card account can have both positive and negative effects on their credit score. It is essential for the authorized user to be aware of these potential impacts and monitor their credit score regularly. If the authorized user has a good relationship with the account holder and is confident in their ability to manage the account responsibly, adding an authorized user can be a beneficial decision. However, if there is a risk of late payments or increased debt, it may be best to reconsider this action.
