Authorized User Accounts to Build Credit Quickly

There are many reasons why your credit score might not where you want it to be. Things such as late payments, high revolving account balances, excessive inquiries, collections and charge offs, and public remarks might be causing an issue.

But for some people, the issue is lack of open and good standing revolving credit lines. A revolving credit line are credit accounts that have a limit but stay open and the balance due changes every month based on what you charge to the account. Credit cards are the most common type of revolving account.  In some algorithms, good usage of revolving accounts are up to 35% of your credit score.

The scoring algorithms want to see the following:

1. Accounts open for at least 12 months, but the longer the better.
2. Accounts that have no late payments.
3. Low credit utilization – which refers to how much of the available balance you are using versus what is available.

For clients who do not have any open revolving accounts, they can usually open a new credit card, pay on time, and keep their balances low, and wait 6-12 months and they will see an increase in score. For clients with absolutely no credit, it can take 12 months-2 years before they see substantial improvement. But what if you need to buy a house now?

Authorized User Accounts

An authorized user on a credit card is granted permission by the primary cardholder to use the card for purchases but is not responsible for paying the bill. They receive their own physical card and can make purchases, but the primary cardholder is ultimately responsible for all charges. When an authorized user is added to a credit card, their credit report will start to include the payment history and credit utilization of the account from the time the account was originally opened. So, if your parent adds you to their credit card they opened in 2005 as an authorized user, it will look like you have been on that card since 2005. This gives you the benefit of a long established positive tradeline- essentially in weeks.

How to Add Someone as an Authorized User

Every credit card company does this differently but most of them will just need a name, birthday, and social security number. They will add the user to the account and ask the primary cardholder preferences about additional cards. Then, during the next credit reporting cycle (so generally within 30 days) you will see the credit account pop up on your credit report and hopefully an increase in your credit score.

Pros and Cons to Authorized User Accounts

Pros:

1. Quick increase in credit score if you are needing better history in the revolving credit line scoring
2. No additional debt is actually accrued to gain the score improvement
3. Could increase your account length history
4. Can be revoked at any time

Cons:

1. If the primary user falls behind on payments, it could hurt your score
2. If the primary user charges too much to their card it could hurt your score

If your score is not where you want it to be, please reach out. I can help formulate a credit plan specific to your needs so that we can get you mortgage ready!