Does having an authorized user hurt your credit?
Adding an authorized user to your credit card account can be a controversial topic. While some believe it can have a positive impact on your credit score, others worry that it might do more harm than good. In this article, we will explore the potential effects of having an authorized user on your credit and help you make an informed decision.
Understanding the Role of an Authorized User
An authorized user is someone who has access to your credit card account but is not responsible for paying the bills. They can make purchases, view account information, and even receive statements, but they are not legally bound to repay the debt. When you add an authorized user to your account, the credit card issuer will typically report the user’s activity to the credit bureaus, which can affect both parties’ credit scores.
Positive Effects of Having an Authorized User
1. Building Credit History: If the authorized user is responsible and uses the card responsibly, their credit score can benefit from the positive payment history. This is particularly helpful for individuals who are new to credit or have limited credit history.
2. Improving Credit Utilization Ratio: The authorized user’s spending can help lower your credit utilization ratio, which is the percentage of your available credit that you are using. A lower credit utilization ratio can positively impact your credit score.
3. Credit Mix: Adding an authorized user can diversify your credit mix, which can also contribute to a higher credit score. A credit mix refers to the types of credit accounts you have, such as credit cards, loans, and mortgages.
Potential Negative Effects of Having an Authorized User
1. Late Payments: If the authorized user fails to make payments on time, it can negatively affect your credit score. Since you are ultimately responsible for the debt, late payments will reflect on your credit report.
2. Credit Utilization Ratio: If the authorized user spends significantly, it can increase your credit utilization ratio, which might harm your credit score. However, this effect can be mitigated if the authorized user pays off their balance regularly.
3. Account Management: Managing an additional credit card account can be challenging, especially if the authorized user is not financially responsible. This can lead to disputes, misunderstandings, and potential damage to your credit score.
Conclusion
In conclusion, having an authorized user can have both positive and negative effects on your credit. It is essential to consider the potential risks and benefits before adding someone as an authorized user. If you choose to do so, ensure that the person is financially responsible and that you maintain a good relationship with them. Ultimately, the decision to add an authorized user should be based on your specific circumstances and credit goals.
