What does adding an authorized user do to their credit?
Adding an authorized user to a credit card account can have several implications for their creditworthiness. While the primary account holder retains full responsibility for the credit card and its debts, the addition of an authorized user can impact the authorized user’s credit report and score in several ways.
1. Credit Utilization Ratio:
One of the most significant ways adding an authorized user can affect their credit is by influencing their credit utilization ratio. The credit utilization ratio is the percentage of available credit that a person is using, and it is a critical factor in determining credit scores. When an authorized user is added to an account, their credit limit is included in the calculation of the primary account holder’s credit utilization ratio. If the authorized user makes purchases and carries a balance, it can increase the primary account holder’s credit utilization ratio, which could potentially lower their credit score. Conversely, if the authorized user does not use the card and pays their balance in full each month, it can help improve the primary account holder’s credit utilization ratio.
2. Payment History:
Payment history is another critical factor in credit scoring. If the primary account holder has a history of timely payments and manages the account responsibly, the authorized user may benefit from this positive payment history. However, if the primary account holder has a history of late payments or defaults, the authorized user may also be negatively impacted. It is essential for the primary account holder to ensure that the account is always in good standing to protect the authorized user’s credit.
3. Length of Credit History:
Adding an authorized user to an account can also affect the length of the authorized user’s credit history. The longer the credit history, the better it is for credit scores. When an authorized user is added to an established account, it can help increase the length of their credit history, assuming the account has been open for a while. This can be particularly beneficial for individuals who are just starting to build their credit.
4. Credit Mix:
Credit mix refers to the variety of credit accounts a person has, such as credit cards, loans, and mortgages. Adding an authorized user to a credit card account can improve the authorized user’s credit mix by diversifying their credit portfolio. This can potentially lead to a higher credit score, as lenders view a diverse credit mix as a sign of responsible financial management.
5. Inquiry Impact:
Adding an authorized user to a credit card account may result in a hard inquiry on the authorized user’s credit report. However, since this inquiry is related to a request for credit, it may not have a significant impact on their credit score. It is essential to monitor the credit report to ensure that no other hard inquiries are affecting the authorized user’s credit.
In conclusion, adding an authorized user to a credit card account can have both positive and negative effects on their credit. The primary account holder should ensure that the account is managed responsibly to protect the authorized user’s credit. It is essential to consider the potential benefits and drawbacks before adding an authorized user to a credit card account.
