Does adding someone as an authorized user build their credit?
Adding someone as an authorized user on your credit card can be a strategic move to help build or improve their credit history. However, the impact of this action on their credit score can vary depending on several factors. In this article, we will explore how adding an authorized user can affect their credit and what you should consider before making this decision.
Understanding the Basics of Authorized Users
An authorized user is someone who has access to your credit card but is not the primary account holder. They can make purchases, pay the bill, and benefit from any rewards or points you earn. However, they are not responsible for the debt on the account, and their credit score will be affected by the credit card activity, including the payment history and credit utilization.
How Adding an Authorized User Can Build Credit
1. Credit Utilization: When you add an authorized user, their credit report will show the credit limit and any activity on the card. If the authorized user uses the card responsibly, such as making small purchases and paying the balance in full each month, it can help improve their credit utilization ratio. A lower credit utilization ratio can positively impact their credit score.
2. Payment History: If the authorized user pays their bills on time, it will reflect positively on their credit report. Timely payments are a crucial factor in determining creditworthiness, and this positive payment history can help build their credit score.
3. Length of Credit History: Adding an authorized user can extend the length of their credit history. The longer their credit history, the better it is for their credit score. As long as the authorized user maintains the account for a sufficient period, it can contribute to a longer credit history.
4. Credit Mix: Having a mix of credit types, such as a credit card, can also benefit their credit score. If the authorized user has no credit cards, adding one can help diversify their credit mix.
Considerations Before Adding an Authorized User
1. Account Management: Ensure that the authorized user is responsible and understands the importance of paying their bills on time. If they fail to do so, it could negatively impact their credit score.
2. Joint Responsibility: Although the authorized user is not responsible for the debt, their credit score will be affected by the account activity. If the primary account holder defaults on the debt, it can also harm the authorized user’s credit.
3. Credit Score Impact: Adding an authorized user can have a short-term impact on their credit score. Initially, their score may drop slightly due to the addition of a new account, but over time, responsible use can improve it.
4. Privacy Concerns: Be aware that the authorized user will have access to your credit card information. Ensure that you trust them and that they will use the card responsibly.
Conclusion
Adding someone as an authorized user on your credit card can be an effective way to help build or improve their credit. However, it is essential to consider the potential risks and ensure that the authorized user is responsible and trustworthy. By doing so, you can help them establish a solid credit history while maintaining control over your own financial health.
