Authorized users are secondary account holders on another’s credit account. It usually benefits those that have little credit history and are looking to build it.
Being an authorized user means the account is yours to use, but you won’t be listed as the primary account holder. And therefore, you’re not responsible for bill payments. However, you get all credit benefits of the account, which, if done right, can help boost your credit score and credit in general.
Let’s delve into the world of authorized users to learn how and when it’s done.
How Does an Authorized User Work?
It denotes having someone share their account with you. So, you can get the credit benefits of the account.
Why would you need someone else’s credit benefits? The reason people do this is when they need their credit score boosted, or raised, in a way they’re unable to do on their own.
For example, Danny needs a high credit score within the month to be approved for a mortgage loan. Danny has zero credit cards open so his credit score is very low, in the 500’s.
Here’s where Danny would be added onto his brother Leo’s credit. Leo, who has a Capital One credit card open for the past 12 years and pays it on time every month, is going to ask Capital One to add Danny as an authorized user to this card. Within the next few days or couple of weeks at most, Danny will see the Capital One card on his own report, with himself reported as an authorized user of the account.
Danny will notice his score shoot up. How? Because Leo’s card has been open for 12 years and is in good status, which are excellent factors for a credit score. Because Danny was added as an AU to this card, his credit report now boasts a 12 year old account. FICO sees that and calculates it into his score, bringing Danny’s score up.
Danny is now eligible to apply for a loan because his score is high enough.
Those are the major benefits of being an authorized user.
How Is It Done?
Whoever is adding you to their account, be it a relative, friend, or acquaintance, will call up his/her bank with your personal information on hand. This includes your legal name, home address, date of birth, social security number. And they’ll ask the bank to add your name to his/her credit card.
Once the request has been processed and the info is reported to the credit bureaus, which can take up to 30 days, the credit card account will show up on your credit report. You’ll be labeled an authorized user of the account.
The responsibility of the account is not yours, only the primary account holder’s. Moreover, the actual credit card will be delivered to the primary account holder’s house, and not to yours. Your relationship to the account is really just that your name is being labeled on the account as an authorized user. That’s enough for you to get the account details onto your own report.
Your credit history will automatically update according to the account. If the account’s been open for 10 years, your credit history will now include a 10 year old account. Even if the account has been added to your report just a few days earlier, you still get the full credit history of the account.
To get maximum benefit, the card you’re being added to should be open for at least 2 years and have absolutely no delinquency or late payment marks. Otherwise, that would just pull your credit down.
Why Is This Really Done?
Authorized users were created to offer a parent, spouse or child a chance to start building credit. By adding a parent, spouse or child to your credit card, you give them a head start on their credit. That’s because they get your credit card reported to their credit report, adding that credit history to be considered in their score.
When Is the Appropriate TIme to Add a Child to a Credit Account?
Some banks have a minimum age from when you can add your child to your account.
|Amex||13 years old|
|Barclay||13 years old|
|Bank of America||No minimum age|
|Chase||No minimum age|
|Citi||No minimum age|
|Capital One||No minimum age|
|Discover||15 years old|
|US Bank||16 years old|
Authorized User Services
When this idea was popular, way back then, it was making waves for consumers in the credit world. People were adding authorized users not just for a spouse, parent or child, but also for acquaintances who needed their scores boosted. It got so popular that some companies even started making money. They would charge a fee to officially match up individuals to account holders of good status and credit, and have them added to the third party’s card. These companies’ clients would see instant score boosts of 100 plus points.
What’s about Authorized Users Now?
FICO were feeling that any consumer was able to boost his or her credit, regardless of their creditworthiness. FICO decided to therefore stop including authorized user accounts as part of a borrower’s credit file. The change was implemented as of the FICO 8 model.
But, the Equal Lending Act (12 CFR § 1002.6 (b) (6)) states: “In evaluating the creditworthiness of an applicant, a creditor shall consider the history, when available of accounts designated as accounts that the applicant and the applicant’s spouse are permitted to use or for which both are contractually liable.”
What that means, scoring models must include authorized user accounts as part of the account history if they’re the primary account holder’s spouse.
To this, FICO claims they can differentiate a legitimate authorized user account from a random party, and are allowed to decide per account.
Still, that cuts down on borrowers’ chances to boost their credit through authorized use.
When Is It Still In Use?
Now that authorized users were no longer an option for many, it slowed down, almost stopping completely. The only time it’s still being used is when applying for mortgages. Mortgage loans use FICO scoring models older than FICO 8. That means authorized user accounts all still get included, just like the older models always were. So, if you’re applying for a mortgage loan and you need a score boost, you may be able to be on someone’s credit and potentially boost your score, saving yourself lots of dollars in interest once the mortgage goes through.
Does Every Bank Allow Authorized Users?
As exciting as it’s made to be, for home buyers going for mortgages, even so, not every bank accepts authorized user accounts as if the account belongs to you. And they don’t count authorized user accounts as yours. Therefore, they often don’t report it to the credit bureaus. In addition, not all banks will report the complete account history. They will report the account history as of when it’s been added to your report, and not the back dated history.
Back to Danny, knowing this, he would have to make sure that the credit card Leo is adding him to, is issued by a bank that reports authorized user accounts to the credit bureaus, with the accounts complete history. Otherwise, if it was a bank that wouldn’t count authorized user accounts into the borrowers report, Danny would get nothing out of being added to the card. The bank would not report it to the credit bureaus, FICO would never see such an account on his report, and they would not include it when calculating his credit score.
It’s therefore important to know which banks report authorized user accounts to the credit bureaus. Here’s a list of those that do:
Card Issuers Who Report to Credit Bureaus
|Credit card provider||Reporting to credit bureaus|
|American Express||Yes, if the authorized user is at least 18|
|Wells Fargo||Yes, if the authorized user is at least 18|
|Bank of America||Yes|
|Discover||Yes, if the authorized user is at least 15|
|Barclaycard US||Yes, if the authorized user is at least 16|
|US Bank||Yes, if the authorized user is at least 16|