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Improving your credit score or establishing a credit history can feel overwhelming given the various factors included in a credit score, particularly if you are starting with a low credit score or a limited credit history. One tactic for improving your credit score or establishing a credit history is becoming or adding an authorized user, depending on the precise situation, to improve credit scores.
An authorized user is someone added to an existing credit card account. For example, if I have a credit card, I can add my mother as an authorized user to my account. In this situation, my mother has no responsibility for payments. Payments are all the responsibility of the card holder. However, authorized users and primary card holders will typically want to set up some kind of payment plan if the authorized user intends to use the card for purchases.
Notice that an authorized user does not have to actually make purchases even if they are added to an account. While authorized users may be added so the primary card holder can support them, a valuable and often overlooked use for an authorized user is credit score hacking.
Become an Authorized User to Improve Your Credit Score
The first reason to become an authorized user is to improve your credit score. If you are starting the journey to improve your credit score and know you have a long journey ahead, becoming an authorized user can expedite the process. Think of becoming an authorized user on someone else’s account as piggybacking on their good credit. For example, if your relative has an 800 credit score, becoming an authorized user on their credit card account will gradually raise your score as they send in on-time payments, manage their credit utilization, and generally practice good credit management habits.
In this scenario, I would not recommend actually getting a tangible credit card or spending any money on the account even though you are an authorized user. This protects your relationship with the individual kind enough to allow you to become an authorized user, and it protects both of your credit scores. Let the individual with a history of good credit manage the account. Just piggyback and let their financial habits improve your credit score along the way.
Letting someone become an authorized user requires a great deal of trust, so do not take this lightly if you value your relationship with the person allowing you to be an authorized user. (You should value that relationship since they are helping you!) Particularly if you are in a position where lenders do not deem your creditworthiness sufficient for a loan, this helpful hack can get your credit score up enough that you can then work on your credit score as an individual.
Make Your Child an Authorized User to Establish Their Credit History
On the other side of the equation, if your credit score is great, you may be able to help someone else out with their credit score. While we cannot predict what individuals who have sufficiently earned your trust will seek assistance with their credit scores, there is one consistent group that can use your assistance: your kids!
I did not open my first credit card until age 22, meaning I never had revolving credit before that point. I had one student loan and one car lease prior to that point, making my credit history sparse and my credit score mediocre at best despite already maximizing contributions to my Roth IRA and avoiding debt. At 24, I briefly considered buying my then-leased car but decided not to given the high interest rate attributed to my short credit history. My consistent on-time payments on that same car over the past two years did not matter. Buying a car would be difficult because my credit history was too short.
Having good credit becomes more pertinent for more purchases each year. Folks now regularly pay off cell phones in monthly installments—we do not recommend this; save up until you can buy the phone outright if at all possible—meaning credit is sometimes a tool to acquire our main communication devices. While you cannot go back in time and establish a longer credit history for yourself, you can help the next generation by making your children authorized users to your accounts.
Add your five-year-old to your credit card as an authorized user. Never actually give the five-year-old a credit card. Just add them to the account, make on-time payments, and establish a credit history for your little one. It will make it a lot easier for them to rent an apartment or get a car loan in their 20s!
One cautionary note that I learned from the Budgetnista, Tiffany Aliche (read her book if you need help with your credit score!): Make sure not to add a young person to an account that existed before they were born. This can raise flags when their credit history is reviewed. Instead, add your child to an account that was opened after they were born to not raise alerts about their credit history. It is fine for a 24-year-old to have a 22-year credit history, even if we do not typically do the household shopping at age two. However, lenders raise eyebrows when a 24-year-old has a 70-year credit history.
Whether you need help raising your own credit score or are in a position to help the next generation, using an authorized user on a credit card is a useful tool to allow one person to “piggyback” on the other person’s higher credit score. Improve a credit score more quickly with a little teamwork.
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