How to Increase Your Personal Credit Score Using Authorized User Accounts is a 3-Part Series of blog posts that are meant to educate entrepreneurs on how to build their personal credit history using authorized user accounts. This is part one of the series.
What Is an “Authorized User” Account?
Authorized users are people who are authorized to use credit cards owned by a primary account holder with an issuing bank or lender. Many people, who are authorized users, have the accounts for the purpose of boosting their credit history and score. When using this personal credit building strategy, it’s important to understand that it’s not recommended that an authorized user actually have access to the credit card. The purpose of this strategy is for the credit card account to report to the authorized user’s credit history to build their credit score using the primary account holder’s established credit history—not to use the card. The primary account holder should request a card with the authorized users name on it and shred it.
Who’s a Good Candidate for Authorized User Accounts?
If you’re an entrepreneur or small business owner in need of capital and you lack an established credit history (or a significant amount of positive accounts reporting), setting up an authorized user account could make sense for you. More often than not, raising capital (especially debt financing), requires a well-established, well managed credit history. As long as you are able to find a creditworthy primary account holder who’s willing to allow you to “piggyback” off of them, you may be able to increase your personal credit score in a relatively short period of time.
Key Facts about Authorized User Accounts
There are a few key facts that you should know about authorized user accounts if you are considering using this strategy to increase your personal credit scores:
- Anyone can become an authorized user on a credit card account as long as the primary cardholder agrees. It does not matter how long each party has known each other or their relation.
- Depending on the lender, a primary account holder may be able to add up to 20 authorized users to a single credit card account. It’s best to ask the lender how many they will allow to get a definite answer.
- An authorized user’s personal credit will never have any effect on the primary account holder’s personal credit history. The authorized user only inherits the credit card account from the primary account holder.
Please Keep This in Mind
The authorized user strategy can work very well for someone who’s trying to increase their credit score and history. However, it can backfire if the authorized user begins using the actual credit card. It can also backfire if the primary account holder begins making late payments. Those late payments will begin reporting to the authorized user’s credit history but can be removed immediately after removing the authorize user from the account. Therefore it’s critical that (a) the authorized user NEVER use the actual credit card and (b) the primary account holder manage the account properly so it’s never paid late or over-utilized.
In part two of this blog series I will discuss:
- The information needed from an authorized user to setup the account.
- How to choose the right primary account holder for an authorized user account.
- How to choose the right lender for an authorized user account.