Becoming An Authorized User

It is estimated that 50 million consumers are "legitimate" authorized users on someone else's credit card. Authorized user accounts are created when a primary account holder on a credit card contacts the creditor and asks them to add a third party to the account. Legitimate authorized users have relationships with the primary accountholders (spouses, children and other family members) and therefore have reasons to share access to the account.

When the account is reported on the authorized user’s credit report they will benefit from the account payment history just as if the account had always been theirs. This can be a terrific boost to a credit file, but it is not a substitute for building your own credit. If you get authorized user accounts you should still get new accounts in your own name, for two important reasons.

Potential Risks

Remember that the account is not yours. This means that you must have a high degree of trust in the account holder. If, for any reason they miss a payment, or even if they just run up the balance during the holiday season, your scores will suffer. And if you ask to be removed from the account once things have gone bad the creditor is not likely to cooperate.

Loan and Lender Requirements

The authorized user status is flagged on your credit report with the letter "A" making the account type easy to identify. This is something to consider, some lenders require that you have accounts in your own name, and authorized accounts will not meet this requirement.

Ultimately, if you’re looking to boost your credit or help a family member or friend increase their score, adding them as an authorized user makes a lot of sense. You don’t even have to give them the card to help them out. Just adding them will increase their number of accounts and total credit limit and in turn raise their credit score.

Joint Accounts vs. Authorized Users

A Joint Account and an individual account with an authorized user are two entirely different credit card arrangements. Both set-ups can help build credit in a very similar manner, but the legal liabilities are quite different. This impacts how both parties’ credit may be impacted.

Joint Account

Both individuals on a joint account are responsible for the debt incurred. When applying for the card account, the credit of both parties is evaluated to determine eligibility, annual percentage rate, credit limit and other account terms and conditions. Both card holders are owners of the credit card account. They share the legal responsibility, privileges and accessibility. Any late payments, defaults and other card activity is shared by both individuals. Either cardholder can make changes to the account without the permission of the other. However, both parties are still legally obligated to fulfill the terms and conditions of the card and any changes made by either party.

Joint accounts have various benefits, and building credit is definitely one of them. Though this method is more difficult than simply adding an authorized user to the account of someone with an excellent credit history.

You can create a joint account in one of two ways:

1. Apply together at the origination of the credit card account. This is fairly common with spouses and couples who have merged their finances and wish to apply for a new credit card. Another popular motivation for this is to help someone you trust get a better rate, build their credit and increase their credit score.For example, a college student may need a credit card for school expenses and has limited or no credit history. A parent or grandparent may be willing to apply for the card jointly so that the good credit history of the older individual has a positive impact on the card terms. And by allowing the younger family member to be an actual account holder, rather than merely an authorized user, he understands that he is responsible for paying the bills and hopefully learns good credit habits from this experience.
2. Change your individual account to a joint account by "re-applying" as joint account holders. If you already have had a credit card for a period of time and you wish to add another account holder, you will need to seek the approval of your card issuer. At that time, the credit histories of both of you will be reviewed to determine acceptance. Again, this would be typical when you marry or merge your finances with your significant other. The benefit to the new account holder is an automatic credit history based upon your prior card history and usage.For example, a woman has had a credit card for five years with an excellent credit and payment history, a $10,000 card limit and a balance of only $1,000. She marries and her spouse has no credit history. They re-apply as joint applicants on the card. They are approved because the husband has nothing negative, just no history. But once he is approved, he has an instant history – the same as his wife’s. Now his credit report shows that he has had a credit card for five years with a low balance and a great utilization rate.

Bear in mind that there are potential downsides for the original card holder. The most obvious one is the possibility of default or poor payment habits by your new joint account holder. This activity will significantly impact your credit score in a negative manner. A second, less obvious, problem can occur if your relationship ends. Once your spouse or partner is on the card, he’s essentially on there for good. If the relationship is over, the joint card holder may start running up the balance and fail to pay. Even if he maintains the card in good standing, if his other credit activity starts declining, this can impact your joint account – the card issuer may decrease your credit limit or cancel the account altogether. Even if you both agree to close the joint account when the relationship ends to avoid these issues, the loss of this credit line will hurt your credit score, especially if you had a high credit limit – say $20,000 – and low utilization rate.