How Being an Authorized User on a Credit Card can Help or Hurt You

October 1st, 2018

How being an authorized user can help or hurt you

For most people, your ability to get approved for a mortgage, and the terms you’re offered, depends on your credit report and your history of managing debt responsibly.

Under some circumstances, your credit score can be affected by loans you’re not even responsible for paying. 

What’s an authorized user?

Virtually all credit card companies allow the primary cardholder, who’s responsible for paying off charges on a credit card, to add their friends and family as authorized users on their account. Authorized users get a copy of the card with their own name and are given permission by the cardholder to make purchases using the card, but aren’t legally responsible for repaying the balance. This is an easy way for parents or spouses to keep track of their household expenses in one place, since all the charges will appear on the primary cardholder’s statement each month.

How being an authorized user can help your credit

Many mortgage lenders require that you have active credit accounts on your credit report (some require three accounts). Being an authorized user can help meet that requirement.

Once an authorized user card is requested, the credit card company will typically report it to one or more of the major credit bureaus within 30 days. For young adults and others with little or no credit history, just having a credit card appear on their credit report will begin to raise their credit score. The longer the card appears, the more of a positive effect it will have, since the credit score algorithms take into account the age of your oldest account and the average age of all of your accounts when calculating your overall score.

The authorized user account may not make much of a difference the first month, but after 10 years it could have a significant positive effect on your credit score.

How being an authorized user can hurt your credit

While being an authorized user can benefit your credit score under some circumstances, there also can be too much of a good thing. Being an authorized user can also hurt your credit score, and keep you from getting the best terms on a mortgage application.

First, lenders want to see that you’re managing debt responsibly. If you’re the authorized user on a card that is being paid off late or is otherwise delinquent, then that payment history can drag down your score. Even if payments are being made on time, if the primary cardholder runs up large balances then it may appear you have an elevated credit utilization, which can also hurt your credit score.

Second, in order to protect themselves from being left holding the bag, lenders also worry when they see a high ratio of available credit lines to income, even if the credit lines aren’t being utilized. Someone with a $50,000 income and $200,000 in available credit is a bigger credit risk than someone with a $50,000 income and $5,000 in available credit.

All of this depends on your credit card and how it’s used

Not all credit card companies report payment history and credit utilization for authorized users.

To see whether your authorized user cards are helping or hurting your credit, you’ll need to request your credit reports from all three credit bureaus and check carefully what data is being reported for each account. (Important tip: AnnualCreditReport.com is the only website authorized to provide you with free annual credit reports from each of the major credit bureaus.)

If you see a high credit utilization or spotty payment record on one or more accounts, then your credit score is more likely to be improved by closing those authorized user cards.

One client of mine recently got removed from three credit cards that she was an authorized user on. Her mother had run up the balances to near the limit on each card, which hurt my client’s credit score. When she got removed from the accounts her credit score improved by 45 points. That lowered her PMI* by $110/month!

Once an authorized user card has been closed, monitor your credit report carefully to make sure the entry is removed. This can take as little as 30 days, or much longer, so if you plan to take out a mortgage or other large loan in the near future, you’ll need to start planning your authorized user strategy as far ahead of time as possible.

Get pre-qualified today as a first step in finding out whether you need to address any issues with your credit.

Brian Martucci is a loan officer for Capital Bank Mortgage, a division of Capital Bank. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Mortgage or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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