Credit cards can be a great way to build your credit especially when you are just getting started or repairing your credit. Being an authorized user on someone else’s credit card account may seem like a win-win, but before you have your name added, make sure you understand all the risks and rewards.
An authorized user is someone who has been added to someone else’s credit card. The primary holder adds your name to the account and you receive your own card. You use the card just like it is your own, however you typically don’t have the same privileges as the account holder such as adding additional users, requesting credit increases, or accessing billing information, etc.
As an authorized user you’re not legally responsible to pay the credit card bill or any debts that build up. Those responsibilities lie with only the primary account holder. When deciding what to do, there are other factors to consider beyond whose responsible for payment.
- Your credit reports. When you are an authorized user, the accounts will most likely appear on your credit reports. Credit card providers typically report account activity to an authorized user’s credit reports but not all will follow this rule. If you are looking to boost your credit, you may want the primary account holder to ask their credit card provider whether they report authorized user accounts to the three major credit bureaus. If they don’t then the activity will NOT have an affect on your credit report. If they do, then you need to make sure that the account will not hurt your own credit.
- Payments and Balances. Before you jump on another person’s account you want to know what you are getting yourself into. Does the primary account holder have a strong history of on-time payments – if so, this can have a positive impact on your credit and conversely, if they don’t, it could cause your credit score to drop. How often is the account used (utilization rate)? If it’s low that can also be good for your credit. If it’s not, you may need to factor in how this will affect your credit. If the balances are close to your credit limits then your credit score could drop. If you need to know, you can determine your new utilization rate by dividing your total credit card balances, including the balance on the new authorized user account by your total credit card limits including the limit on the authorized user account.
- The length of the account. A lot of new accounts being opened can be a red flag and detrimental to you credit score so having several new accounts may hurt more than it helps. Future creditors like to see lengthy histories with your current creditors. If you are going to be added to someone else’s account, be sure to inquire how long the account has been open, especially if you don’t have many long term accounts already on your credit report.
Remember, as an authorized user, your credit report will be inheriting the primary account holder’s credit habits so choose wisely. Select someone whom you can trust, who is financially responsible and doesn’t keep large balances. While it may seem like a great idea to help boost your credit score, putting yourself on the wrong person’s account could backfire.
At Litchfield Bancorp, we offer our customers may different “perks” including consumer credit cards. If you’d like more information on our no annual fee, low introductory rate cards that are accepted worldwide – give us a call or stop into any of our branches – Your Bank… Your Card.
Litchfield Branch Manager, Vice President
NMLS MLO ID: 698742