Authorized User Pros and Cons

As you might suspect from the title of this article, there is both good and bad that could result from being an authorized user.  In my quest for information on this subject I found much ambiguity.  Let’s begin with the definition found on Experian’s Website:

“Autorized User – Person permitted by a credit cardholder to charge goods and services on the cardholder’s account but who is not responsible for repayment of the debt.  The account displays on the credit reports of the cardholder as well as the authorized user.  If you wish to have your name permanently removed as an authorized user on an account, you will need to notify the credit grantor”. 

Capital One’s website makes the following statement “Authorized users receive their own card, sharing available credit limit with the primary cardholder.  The account will not be recorded on the authorized user’s credit bureau”. 

And finally Wachovia’s website provides the following information “Please remember that an authorized user is different from a joint cardholder.  An authorized user has no financial responsibility for the account.  Should the account fall into delinquency, however, the credit profile of an authorized user is effected detrimentally”. 

As you can see from these statements, not all creditors treat authorized user status the same.  It is important to know a creditors policy prior to implementing the authorized user strategy commonly referred to as “piggy backing”.  If you have a consenting relative or close friend who has a credit card with a perfect payment history and the account is preferably twenty-four months or older; then, you can request to be added as an authorized user (assuming the creditors policy allows).  After approximately ninety days of being added on to the account, you will have that tradeline added on to your credit bureau as well.  The trade will be reported from the original date (i.e. if the trade is 36 months old then you will have 36 months reporting as a good trade on your report as well).  This can dramatically increase your credit score.

Now for the bad news.  The bad credit can follow you as well.  If you are added on as an authorized user, then you should monitor the payment history of that account.  If you find any instance of delinquency on that tradeline, then you need to contact the creditor and request in writing that you be removed as an authorized user on that account.  Credit Bureaus list codes of J – “joint” and A – “authorized user”.  I have seen derogatory ”A” entries challenged and successfully removed.  The longer that you wait — or the longer it takes for you to become aware of the delinquency — the more difficult it will be to have it removed.  If the guarantor on the account files for Bankrutcy then you could also have a Bankruptcy reporting for that tradeline on your credit file.

The moral of the story is that this strategy should be used at a moment in time for people who have no credit or are trying to recover from bad credit.  You may see a marketable improvement in your credit score of 100 points or more and that can help you to qualify for credit of your own.  Once you have obtained your own credit, then you should request to be removed as an authorized user.

>>>EDIT: FICO changes scoring algorithm.  Must now add as Joint cardholder.