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 three of the series. Click here to read parts one and two of the series.
The Benefits of Authorized User Accounts
The major benefit of becoming an authorized user on an existing credit card account is that it can increase your personal credit score and improve your credit history, enabling you to better qualify for debt financing for your small business. If you are lucky enough to inherit a credit card account that has an excellent payment history, your credit score will skyrocket! Payment history makes up 35% of your overall credit score, so finding a primary account holder with a stellar payment history is an absolute must. In addition, it is important to make sure that the credit card account has a low balance. High credit card utilization is a huge red flag for lenders (as I explained in part two of this blog series). Lastly, finding a primary account holder with a seasoned credit account is just as important. The age or length of your credit history makes up 15% of your overall credit score. Lenders focus on the longevity of your credit history as well as the payment history to determine whether or not you are a creditworthy borrower. In a nutshell, the major benefits that can be experienced with an authorized user account are:
- Added longevity to your credit history.
- Diversity in the types of accounts reporting to your credit history. (It’s important to have a mix of credit accounts reporting on your credit history including loans and credit cards. Your mix of credit accounts makes up 10% of your credit score).
- Increased credit score.
- Greater ability to borrow (i.e. a greater chance for approval).
- Increased choices when looking for a lender to borrow from.
Can This Work for You?
Absolutely! This can work best if you follow the guidelines we’ve given you in this 3-part blog series. They key is finding a primary account holder with stellar credit who’s willing to add you as authorized user. It’s also important to make sure that the authorized user account will actually report to your credit history. Be sure to tell the primary account holder to volunteer your date of birth and social security number to the customer service representative when they contact the lender to have you added as an authorized user. Even if the rep doesn’t want to accept the information, volunteer it anyway. If they still don’t want to take the information, hang up and call back until you get a rep that will add the information. That is the most critical component in the setup of this strategy because the accounts need to report to your personal credit if they are going to positively influence your credit history. The lender must have your social security number to report the account to the credit bureaus.
Authorized User Accounts are Becoming Worthless: True or False?
In recent years I’ve heard the rumor that authorized user accounts are becoming worthless due to the release of FICO ’08. However, there isn’t any solid evidence that this is true. There may be some ability for lenders to detect inauthentic authorized user accounts using the FICO ’08 model but there is no concrete proof that this is fact. Most lenders use FICO scoring models to determine the creditworthiness of a borrower, however the good news is that not all of them are using the FICO ’08 model as of yet. Therefore it still leaves time for millions of people to benefit from using the authorized user strategy. As long as it is setup properly, your personal credit history and score will be positively impacted, increasing your chances of qualifying for debt financing for your small business.