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What You Need to Know About Being an Authorized User on a Credit Card

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If you’re looking to build your credit (we’re not sure anyone’s ever tried to do the opposite) you may have come across the idea of being added as an authorized user to someone else’s credit card. 

You may want to slow down and consider other options before being added to a person’s card or adding someone to your own account.

Read on to find out why.

What’s an authorized user?

If you’re an authorized user of a credit card, it means the account owner told the credit card company to list you as someone who can use the card. Purchases you make go through like any other purchase, but the authorized user isn’t on the hook to pay; that responsibility goes to person who owns the account.

This sounds like a pretty great deal for the authorized user, but there are potential drawbacks for you, as well as for the account holder. 

What does being an authorized user have to do with a credit score? Who would want to be one? 

If you don’t have a credit history, building one can feel like a catch-22. That’s because to have a good credit history and the good rates that go with it, you need to be offered credit. And to be offered credit – like a loan or a credit card – you typically need a good credit history.

There has to be a workaround, right?

There is, but being an authorized user may not necessarily be a way of doing it. What we found while researching this topic was that there’s a lot of “well, this could help you build credit, but it could also do nothing…” sort of explanations. 

For example: As an authorized user, your name may (or may not) appear on the credit report because credit card companies may (or may not) list authorized users in their reports to the credit bureaus. If you’re not listed on these reports, the credit history for that account doesn’t have your name on it, which means it’s not helping you build your personal credit history.

Credit score impact in this scenario: zero for the authorized user, assuming that their name isn’t included on any particular credit reports.

Another reason being an authorized user may not help has to do with the credit history of the person who’s adding you as an authorized user to their account. Assuming the credit card company does list authorized users in its credit bureau reports, this should be a relief, but, wait for it . . . if the account holder has a poor credit history, your name will be on that report and your credit score could (another maybe) be affected by their low credit score. A way around this includes preparing for what may be an awkward request: to see the account holder’s credit score and report before signing on as an authorized user.

Credit score impact in this scenario: possibly bad for the authorized user, depending on the creditworthiness of the account holder.

To find out if a credit card issuer tells the credit bureaus about authorized users, you may want to research the cards or call them directly and see if they generally include information about authorized users on their reports to credit bureaus.

An account holder may not want to add an authorized user

This could sting. As close as you may be to someone, they may turn down your request to add you as an authorized user of their credit cards. But it may be with good reason; these are just two of them:

  1. You could increase their credit utilization ratio. Many sources suggest having a credit utilization ratio below 30% is an important factor when it comes to  maintaining a good credit score. This ratio represents how much credit’s being used compared to how much is available. If you’re an additional user, you’re eating into that available amount of credit and could sink their score if you close in on or exceed that threshold. 
  2. You don’t have to pay for your purchases, but they do. All of them. You may have the best of intentions of paying the account holder back, if that’s what you’ve agreed to, but they are going to have the pay the bill regardless, even if they don’t agree with your purchases.

Alternatives to being an authorized user: joint accounts and secure credit cards 

Creditors want to know you’re a safe bet for them, meaning you’ll pay your bills and you’ll pay them on time. Two ways you can show your responsibility and build up your credit reputation include being a joint account holder on a credit card account, or getting a secured credit card. 

Here’s what these are:

When you’re a joint account holder, you have all the benefits of an authorized user (you can buy stuff!) and will be able to build your individual credit history along with having the responsibility of making sure the bill is paid. This means making sure it’s paid if your co-account holder doesn’t chip in even if you haven’t made a single purchase because you and the other person listed on the account are responsible for the charges.

This can be a great arrangement when everything’s paid on time and credit limits aren’t hit. But if things slip (a late or partial payment) it’s bad for your credit score and theirs. 

Some things to consider before becoming a joint account holder:

  • If your future partner in credit has a credit score, ask to have a peek at their score and report. If the information there is good, that’s great. If it’s bad, it could be a good idea to walk away, because their bad credit could potentially harm your credit report and score. 
  • Since you’ll be sharing a credit line you may want to discuss how and if you’ll coordinate purchases – will you discuss purchases over a certain amount? Will you track how much of the shared credit line is being used to avoid maxing it out?
  • You may want to come up with an agreement about who will pay the bill, when, and if you’ll be paying in full every month or if you’ll carry a balance and pay at least the minimum due.

Feel like a lot? We hear you, but it’s really important stuff to look into and cover.

Credit score impact in this scenario: could help or hurt both people on the account, depending on how the people on the account manage it. 

Secured credit cards may look like a pay-as-you-go situation because you give the creditor money before you can use the card, but it’s not. Instead, that money, which is usually equal to your credit limit, is a security deposit you don’t borrow against; it’s there to protect the credit card company if you’re not able to keep up with your bills.

That said, you’re in this to build your credit history, so your goal will be to pay what’s due, pay on time, and try to avoid maxing out your credit. And then doing it over and over (and over) again because it will help you build and maintain a solid credit score.

One benefit here is that it’s just you, which means no one else on the account could bring you down by not paying the bill. Another is that the deposit is usually refundable: just look at the card’s terms and conditions.

Credit score impact in this scenario: could help or hurt your credit score, depending on how you manage the account (as in stay on top of payments).

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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