Does Being an Authorized User Build Credit? Understanding the Impact on Credit Score

Key Takeaways

  1. Individuals with poor or no credit face challenges in securing loans to build credit, and becoming an authorized user on another's credit card can be a helpful alternative.
  2. As an authorized user, you can use a credit card linked to someone else's account, but responsible use is essential to avoid negatively impacting both parties' credit scores.
  3. Being an authorized user can improve your credit score if the primary cardholder has good credit habits, but poor management can harm both scores.
  4. Credit Builder Loans are tailored for people with limited credit history, where regular payments made before accessing loan funds help in building credit.
  5. Using a mix of credit types, keeping credit utilization low, and regularly checking credit reports are effective ways to improve and maintain a good credit score.
Does Being an Authorized User Build Credit? Understanding the Impact on Credit Score

I. Introduction

One of the most frustrating issues for people who have bad credit or no credit is that it’s very difficult to start improving your credit score. If you don’t have good credit, many lenders will be reluctant to lend to you. Proving that you can borrow a reasonable amount and pay it back on time is how you build your credit score. Unfortunately, if you can’t get a loan, you can’t show that you’re able to make regular payments on time. Fortunately, there are a few solutions to this problem. One of them is becoming an authorized user on someone else’s credit card. When you do this, you receive a credit card in your name that you can use to make purchases. However, it is attached to someone else’s account. This is a way to get a credit card even if you have poor credit or no credit.

This strategy can potentially improve your credit score, but it’s important to understand the details and specifics of the situation before you decide to use this method. Here is what you need to know about how being an authorized credit card user can affect your credit score.

II. Becoming an Authorized User: How It Works

When you become an authorized user on a credit card, you receive your own credit card in your own name that you can use just like any other credit card. You can make purchases, sign up for subscription services, and essentially do whatever you would do with a credit card. However, the card is attached to another user’s account. This means you are not officially responsible for paying the bills on the card. The payments are the responsibility of the primary card holder. However, you’ll still need to use the credit card responsibly. If you make more purchases than the primary holder can afford to pay back, not only do you risk getting them into financial trouble, but you could cause them to miss payments, and this will hurt both their credit score and your own.

It is vital that all users on the card use it responsibly. This means making reasonable purchases that the primary holder can afford to pay back. The primary holder needs to make sure they pay all the bills on time. In short, anything that happens with this card affects the primary holder and your own credit score, so you need to use care.

Does being an authorized user build credit? This strategy can help you build credit if everyone acts responsibly, but it can hurt your credit if either of you do not.

It’s also important to check with the credit card provider and ensure that they report authorized users to the credit bureaus. There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. These bureaus prepare credit reports for anyone who accesses credit. Whenever a person takes out a loan, makes a payment, or otherwise utilizes credit, the credit provider reports their actions to the bureaus. If the credit card provider reports authorized users to the credit bureaus, the user can get a bump in their credit score if the primary cardholder makes payments on time.


III. The Impact of Being an Authorized User on Credit Scores

When most people think of adding an authorized user to a credit card, they think about how the credit history of the primary user can help boost the credit of the authorized user. This is often true and it’s one of the main reasons why someone who has no credit or bad credit would want to become an authorized user on a card. However, the actions of the authorized user can negatively affect the primary cardholder as well. The main way this could happen is if the authorized user overspends. If you spend more than the primary account holder can afford to pay back, this could cause them to miss payments and that will hurt their credit score.

Credit utilization is also important. If either the primary user or any authorized user makes many charges on the credit card, that can increase the amount of available credit that the primary account holder is using, and this may hurt their credit score. Lenders don’t want to see someone maxing out their credit. Does being an authorized user build credit? Becoming an authorized user is generally only beneficial if the primary cardholder has a positive credit history. If they have bad credit or if they follow poor credit habits (missing payments, making payments late, overspending, etc.) then becoming a user on their account likely won’t help.

IV. Becoming an Authorized User as a Credit-Building Strategy

One of the primary reasons to become an authorized user on someone’s credit card is if you have a limited credit history. While many lenders will be reluctant to give someone credit if they have no history, there is no credit check required to become a user on someone else’s card. Therefore, a person with limited history can be added to another user’s card quite easily. Becoming an authorized user is most beneficial to those who have limited or no credit. That’s because the bump to your credit score from being an authorized user is typically quite modest. However, it establishes you within the credit system and gives you a good start when you are trying to build your own credit. It is, however, important to note that becoming an authorized user isn’t the only way to establish yourself and start building and improving your credit score.

V. Credit Builder Loans: A Closer Look

Another option for building your credit is a type of loan called a credit builder loan. Credit builder loans are different from more traditional loans because you do not gain access to the loan amount right away. With most other loans, you receive the loan amount when you’re approved and then you make regular payments until the loan has been paid off in full, plus interest.

With a credit builder loan, when the loan is approved, the loan amount is placed into a specific account. The borrower then makes regular payments until the amount of the loan plus interest is paid off. Once all payments are made, the borrower receives the amount of the loan. These loans can help someone who is trying to improve their credit because they are typically quite easy to get. Since you don’t gain access to the loan amount until after you have made all the payments, there is very little risk to the lender. This means that a person can typically get a credit builder loan even if they have no credit or bad credit. Most lenders don’t do a credit check at all for these types of loans.

However, they do typically report payments to the major credit bureaus. This means that someone can take out a credit builder loan, make regular payments on time according to the terms of the loan, and improve their credit score by doing so.


VI. Building Credit with Credit Builder Loans

With a credit builder loan (as well as with many other types of loans), the lender reports activity on the loan to the credit bureaus regularly. If you make your payments on time, the bureaus receive this information, and it is added to your credit report. Lenders like to see that a person has a history of making on-time payments. Therefore, your credit score improves if you make your loan payments on time. This makes it easier for you to get future loans.

For individuals with no or poor credit, a credit builder loan can be a good option.. With most other loans, the lender will do a credit check before approving the loan. They want to assess the risk of giving you a loan. If you have bad credit or no credit, there’s a good chance you will not be approved for many traditional loans. However, with a credit builder loan, there is very little risk for the lender. Therefore, they don’t typically do a credit check. In most cases, the lender’s primary concern will be that you have sufficient income to pay back the loan.

It is, however, important to remember that each loan is different. Even among credit builder loans, you will still want to confirm all the details of the loan before you agree to it. Read the terms, make sure you know what interest rate you are paying, if there are any fees associated with the loan, the length of the payment period, how often you will be expected to make payments, the size of these payments, and more. You’ll also want to confirm that the lender reports your payments to the major credit bureaus: Equifax, Experian, and TransUnion. If you are looking to build your credit score and are considering a credit builder loan, please consult our credit builder loan reviews.

VII. Complementary Strategies for Credit Improvement

Following good financial practices is necessary for improving and maintaining a good credit score. In addition to becoming an authorized user on a credit card, you can help boost your score by using different types of credit accounts, if possible. That’s because your credit mix is a factor used when calculating your credit score. If you have a good mix of installment credit accounts (such student loans, auto loans, mortgages, and personal loans) as well as revolving credit accounts (such as credit cards), this can help boost your credit score. However, you’ll still need to use your credit responsibly. Your payment history is by far the most important factor used when calculating your credit score.

In addition, lenders like to see that people aren’t maxing themselves out, or using all or nearly all of their available credit. Therefore, those who have the best credit scores use only about 30% of their available credit. This is called credit utilization. For example, if a person has two credit cards and each has a $5,000 limit, they have $10,000 of available credit. Lenders like to see a utilization rate of around 30%, so the person should try to only use about $3,000 of this credit at any time.

Finally, monitoring your credit report and addressing inaccuracies or negative information can also help improve your score, so you should check your account and make sure all information in it is correct.

VIII. Making Informed Credit Decisions

Having a good credit score is vital for most people. If you have poor credit, not only will you have trouble getting loans (including automobile loans or mortgages), but it can also make it more difficult to rent a home. It can even make it tougher to get certain jobs. Therefore, understanding credit-building strategies and knowing how to establish and maintain good credit is important.

Borrowing reasonable amounts and making your payments on time are two major keys to having a good credit score. Therefore, you’ll need to make and stick to a budget so you don’t overspend each month. In your budget, be sure to include categories for debt repayments, so you don’t miss any payments on your credit cards or other loans. Each person’s financial situation is unique, and a financial professional can help you by outlining personalized credit-building strategies that will work best for you.


IX. Conclusion

There are several ways to improve your credit score if you have no credit or poor credit. One way is by becoming an authorized user on another person’s credit card. If payments on this card are made on time, you can improve your credit score even though you will not be responsible for making the payments yourself.

However, as with any credit situation, it’s important to be responsible. If you overspend, for example, this can hurt your credit score as well as the primary user’s score.

In general, managing credit responsibly is one of the major keys to establishing and maintaining a healthy credit score. If you follow good credit habits, do not overspend, and ensure that payments are made on time on every account you are included on, this will improve your credit and your overall financial life.

About The Author

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Bryan Huynh

Product Tester & Writer

Bryan Huynh, a committed Product Tester and Writer, ensures that you are well-informed, guiding you in discovering and comparing top-rated financial services, including personal loans, business loans, credit repair, and tax relief.

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