Signing up for an Authorized User account may make you wonder how these accounts can improve credit scores. Authorized users aren't legally responsible if the balance is not paid out monthly. However, credit card purchases allow them to build up their credit score.
Authorized users are able to make purchases on their behalf
It can be a smart idea to add a child or teenager as an authorized user to a credit card. This is a great way to teach them about personal finance, debt management, and responsible borrowing. These lessons are important for young people, especially college students. Adding a student to your account can be a smart idea, but it can also be a complicated decision.
Adding an authorized user can have a large impact on your credit score. Credit utilization is a key factor in determining credit scores. Example: If you have $1,000 in credit and make $300 per month, this means that you're using 30%. You can lower your overall usage by adding an authorized user to the account.
They are not legally liable to the balance
A cardholder authorized user is not legally responsible for any balance on the card, unless they make unauthorized purchases and charge an item that the original cardholder hasn't authorized. If the cardholder passes away, however, a spouse can be held responsible for the debt in certain states. A community property state may allow an authorized user to be a joint account holder, and therefore share the responsibility for the account's debt.
If the primary account holder isn't happy with an authorized user charging anything, they can have them removed. It's typically as simple as calling the customer service number or filling out an online form. Some card issuers will only allow the primary account holder or authorized users to be removed.
They don't have monthly payments
It's possible to build credit by adding an authorized user on your credit card account. Authorized users piggyback on the good payment history of the primary account holder. If the primary cardholder is punctual in making all payments, authorized users should be able to see a positive credit history. But not all credit card companies report authorized user accounts to credit bureaus.
Another option is to add a loved one to your credit account. You can trust this person to not use the card to make unnecessary purchases. The credit limit can be maintained so long as the card is used only for legitimate purchases.
They can also create credit histories
If you are considering becoming an authorized user of someone else's credit card, you need to be careful with the way you use the card. While this account does have some benefits, it is not wise to misuse it. Credit score can be improved by using it responsibly.
A credit card account that has an authorized user can help improve credit scores. This will lead to lower rates and better access to products. If you fail to make payments on time, this can adversely affect your credit. In this case, you may want to consider applying for a secured credit card instead.