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 two of the series. Click here to read part one.
The Information Needed to Setup an Authorized User Account
When a primary account holder approaches a lender to add an authorized user to their credit card account, the lender will ask them for specific information. Authorized users are typically required to supply lenders with the following:
- First and Last Name
- Social Security Number
- Date of Birth
Some lenders will not ask for the authorized user’s social security number and in this case you would volunteer the information to guarantee that the credit card account will report to their personal credit history. They may also ask for an address and employer however that is rare. It’s most important to supply them with the name, social security number, and date of birth of the authorized user.
How to Choose the Right Primary Account Holder for Authorized User Accounts
Choosing the right primary account holder can be quite difficult. As I stated in part one of this blog series, it’s ideal to find a primary account holder is can prove they know how to effectively manage their credit. As an authorized user, you’ll want to “piggyback” off of someone who has stellar credit. In addition, you’ll want the credit card account to be at least 5 years old, 10-20+ years is even better. It’s also important that the credit card account have a low balance (preferably below 15% of the total available credit limit). This is because maxed out credit lines (i.e. credit cards with 30% or more of the total credit limit utilized) will do nothing to help your credit as an authorized user. Lenders see maxed out credit lines as a red flag. Lastly, you’ll want to make sure there are not a significant amount of late payments on the account. There should be no late payments in at least the last two years. The primary account holder should have a stellar payment history.
How to Choose the Right Lender for Authorized User Accounts
When choosing a primary account holder, it’s also important to ask what lenders they have credit card accounts with. This is because some lenders may not report authorized user accounts to the credit bureaus. The best way to determine whether or not a lender reports authorized users to the credit bureaus is to pay attention to what information the lender asks for when the primary account holder requests that they be added. If they don’t ask for the date of birth and social security number of the authorized user, chances are they won’t voluntarily report the account to the person’s credit history. Historically, the best lenders for this strategy have been Capital One, Bank of America, and Citi Bank. It will work with other lenders, but the strategy is almost a slam dunk process with the aforementioned lenders.
In part three of this blog series I will discuss:
- The benefits of having authorized user accounts.
- If it can really work for you.
- If authorized user accounts will continue to matter with the new FICO 08 scoring model in place