Does making someone an authorized user help their credit?
In the world of credit, there are numerous strategies individuals use to improve their credit scores. One such method is adding someone as an authorized user on a credit card. This practice has sparked a lot of debate among financial experts and consumers alike. In this article, we will explore whether making someone an authorized user can indeed help their credit.
Understanding the Concept of an Authorized User
Before diving into the benefits of adding an authorized user, it’s essential to understand what it means to be one. An authorized user is someone who is allowed to use a credit card but is not responsible for paying the bill. They do not have access to the primary cardholder’s personal information, such as their Social Security number, and are not legally bound by the credit agreement.
The Potential Benefits of Adding an Authorized User
1. Building Credit History: One of the primary reasons for adding an authorized user is to help them establish a credit history. If the authorized user has a limited credit history or no credit history at all, using the primary cardholder’s account can help them build a positive credit profile.
2. Credit Utilization Ratio: By adding an authorized user, the primary cardholder can potentially lower their credit utilization ratio. This is because the authorized user’s credit limit will be included in the calculation, which can result in a lower overall utilization rate for the primary cardholder.
3. Positive Payment History: If the primary cardholder has a good payment history, this can positively impact the authorized user’s credit score. As long as the primary cardholder pays their bills on time, the authorized user benefits from this positive payment history.
4. Credit Mix: Adding an authorized user can also help improve the authorized user’s credit mix. A diverse credit mix, which includes different types of credit accounts (such as revolving credit and installment loans), can contribute to a higher credit score.
Considerations and Risks
While there are potential benefits to adding an authorized user, it’s important to consider the risks involved:
1. Shared Responsibility: If the authorized user misuses the credit card, it can negatively impact both the primary cardholder’s and the authorized user’s credit scores.
2. Account Closure: If the primary cardholder closes the credit card account, the authorized user’s credit score may be affected. This is because the authorized user’s credit history will be shortened, which can have a negative impact on their score.
3. Lack of Control: The primary cardholder has no control over how the authorized user uses the credit card. This can lead to unexpected charges and potential financial strain.
Conclusion
In conclusion, making someone an authorized user on a credit card can help them build credit history, improve their credit utilization ratio, and potentially boost their credit score. However, it’s crucial to weigh the risks and consider the potential consequences before adding an authorized user. As with any financial decision, it’s essential to be informed and cautious.
