Does Being an Authorized User Build Credit?

If you can't get a credit card due to a limited history or low credit score, one option is to become an authorized user on someone else's credit card. But does being an authorized user build credit? Here's what you need to know.

What it means to be an authorized user

An authorized user is someone who's added to use an existing credit card account who can make purchases, but isn't responsible for paying the balance.

Here's how it works:

1. If you need help building a credit history, you may ask a parent, sibling, or friend to add you as an authorized user to their credit card.
2. The credit card company will issue you your own card on that account.
3. You can use that credit card the same way you could use a card you applied for yourself.

If you're being asked to add someone as an authorized user, it's the same deal. Once that person is on your account, they can charge expenses on your credit card account.

How being an authorized user helps build credit

If you've never had bills or a credit card account of your own, you might land in a frustrating situation where you can't get approved for a credit card or loan due to your absent credit history. But if no one approves you, you can't build that credit history up.

Similarly, you may have a rocky payment history as a result of having been late with some bills during a rough patch. When your payment history (which speaks to how timely you are with your bills) is poor, it can hurt your chances of getting approved for a credit card or loan. Either way, if you need to build credit quickly, becoming an authorized user on an existing credit card account can be a good solution.

Here's how being an authorized user can help your credit:

• Any positive payment on the credit card account gets reported to the credit bureaus, which builds more credit history for you.
• As long as payments are made consistently and on time, your credit score can go up.
• If you have low credit limits and someone with a high credit limit and a low balance adds you, you could lower your credit utilization ratio, which measures how much of your available credit line you're using at once. A lower number is good for your credit score.

When you're added as an authorized user to an existing credit card, any positive payment activity on that account gets added to your credit record. Say your parent adds you as an authorized user on their credit card and then pays that credit card off in full every month for 12 months in a row. That positive activity will become a part of your credit history, too, and it will be reflected on your credit report.

The result? A more robust credit history if you're missing one, and the potential for your credit score to rise if it needs work.

That said, if you want to become an authorized user or you're considering adding one, confirm that the credit card issuer reports authorized user status to the three major credit bureaus. If the bureaus don't receive records of your status, you won't build your credit history.

The benefits of being an authorized user

By becoming an authorized user on an existing credit card, you get to piggyback off the primary cardholder's responsible payment activity.

Here are some of the benefits of going this route:

• It can make building credit easier.
• You could improve your credit score more quickly.
• You get to use the credit card you've been added to.

That said, you'll need to establish ground rules with the primary cardholder before putting that card to use. Since that person is doing you a favor, you'll need to come to an agreement on how much you're allowed to spend on that card and how and when you'll pay your share of the bill. If you charge up expenses you can't pay, you'll leave the main cardholder to either cover those charges or risk a late payment on their record.

The drawbacks of being an authorized user

Being an authorized user requires financial responsibility on behalf of both the primary cardholder and the authorized user. Here are some pitfalls to be aware of:

• If the person who adds you as an authorized user is late with payments, that could reflect poorly on your payment history.
• You could hurt your loved one's finances or credit score if you make purchases they can't afford to pay off.
• Some card issuers charge a fee to add authorized users.

You should only ask someone you trust to add you as an authorized user to an existing account. Ideally, that person will be someone who already has good credit (or, better yet, excellent credit) and a steady job. Make sure you've discussed what purchases you're allowed to make, as they'll be on the hook for the bill.

Should you add someone as an authorized user to your account?

It depends. You may want to help out someone close to you by adding them as an authorized user to your credit card. But before you do, consider the risks:

• If your authorized user doesn't pay you back for their charges, you could get stuck footing the bill.
• If you can't cover those charges, you could be liable for interest charges. If your credit card has a high APR, that credit card debt can be costly.
• Having too high a credit card balance can cause damage to your credit score by increasing your credit utilization ratio. The higher that ratio climbs, the more damage your credit score might suffer.

Here's what to consider before you give someone authorized user status on your credit card account:

• Make sure it's a person you trust.
• Confirm they have an income to cover their charges.
• Set clear rules for using the card and paying for the bills.

For example, if you add an authorized user to a credit card with a $5,000 credit limit, you may decide that they can't charge more than $1,000 in a given month. And you may decide that your authorized user needs to write you a check for their share of the bill every week, every two weeks, or every month. 

If your goal is simply to help someone build credit, you could also make them an authorized user without giving them a physical credit card. Doing so won't help them learn to manage credit responsibly, but it's an option if you don't want someone else racking up charges on your credit card.

The specifics are up to you, but the key is to make sure you don't get hurt in the process of helping someone build credit.

Alternatives to becoming an authorized user

If you need to boost your credit score or build up a credit history, becoming an authorized user on an existing credit card account isn't your only solution. 

Here are a few ideas for people who are just starting to build credit:

• Open a secured credit card. With a secured credit card, you put down a deposit that serves as your credit limit. As you charge expenses on that credit card and pay your bills on time, that positive activity gets added to your payment history.
• Apply for a student credit card. If you're at least 18, you have some income, and you're enrolled in college, you may be able to qualify for a student credit card. These credit cards are designed to help college students build credit and you can often qualify with no credit history.
• Check out store credit cards. Closed-loop store credit cards, which you can only use at a specific retailer, often have less stringent credit requirements than regular credit cards, making them an option for building history. However, they tend to have high APRs, low credit limits, and often charge deferred interest.
• Consider a credit-builder loan. Some banks and credit unions offer credit-builder loans, which are essentially reverse loans. You make payments to the lender, but you don't get your money until the end of the loan term (usually 12 to 18 months), when you receive your money in a lump sum.

The bottom line

Becoming an authorized user on an existing credit card could work wonders for your credit history and score. Even if you're able to qualify for a credit card of your own, it could pay to become an authorized user on an existing account instead. That way, you'll benefit from the primary cardholder's payment history and you'll avoid the hard credit check that comes with applying for a card of your own.

If you're going to become an authorized credit card user, do recognize that the primary cardholder is doing you a major favor, and do your best to keep up your end of the bargain by sticking to the ground rules you establish. And if you're being asked to add someone as an authorized user to your account, make sure that person is trustworthy. The last thing you want to do is compromise your credit score and finances in an effort to do a nice thing.

Still have questions?

Some other questions we've answered:

• How can I build credit fast?
• Should I add my child as an authorized user on my credit card?