Authorized Users – Does It Help Your Credit Score?
Authorized users are those credit card holders who have the ability to use a particular credit card, but who are not liable for the payment of any charges on the card.
Parents, for example, have frequently added their family members on their credit cards as authorized users. That way the parent could provide their son or daughter with a credit card for emergency purposes but without the legal responsibility for the monthly bill because the parent remained legally responsible for the credit use and resulting payment obligation.
Additionally credit scoring systems such as Fair Issac (FICO) did not treat authorized user accounts separately when computing the credit score, so the son or daughter would inherit, so to speak, the favorable credit history of the parent. The result could be that even kids with limited credit experience who were authorized users with good credit parents might now have a strong FICO score. Of course, the reverse was also true, and many authorized users could inherit the bad credit from the parent, lowering their score.
Unfortunately, the practice of setting up authorized users got out of hand to the point where credit repair companies began selling favorable authorized user credit account histories on the Internet in an effort to inflate people’s credit scores. According to some reports there was such misuse on the Internet that a card holder with a good payment history could add literally twenty+ unrelated people as authorized users to their account. Of course the motivation for the card holder was profit. For the authorized user, the benefit was enough of a lift to their credit score to qualify for new loans and better payment terms.
Fair Isaac (FICO) finally recognized the abuses of the practice recently and adjusted their credit score algorithm (the set of rules FICO uses to score credit reports) to ignore authorized user accounts. The result is that generally credit scores will no longer be inflated by authorized user accounts. Good news for lenders who do not want credit scores artificially manipulated. Bad news for legitimate authorized users who may have benefited somewhat from their parents’ good credit habits.
Really though the original intent of the authorized user practice still works fine. It just won’t affect credit scores like it did before, but it can still provide a credit card to those who might not otherwise qualify for one.
If you really want the credit score effect, you will have to add the former authorized users as a co-signer on the card. If that is not permitted, then consider getting a secured card for the person. Be sure to choose a secured card company that reports payment history to at least one of the three national credit bureaus so it will be a factor used in computing the person’s credit score.
