Case Study: Build Credit for Someone by Adding Them as an Authorized User
When I first purchased my condo three years ago, I was not offered the lowest rate due to my insufficient credit history. Even though I had a credit score in the high 700′s, the bank considered me a slight risk because my credit history was so limited(I was only 22). I thought my mom was doing me a favor during college by opening a credit card for me in her name but once I canceled it and opened my own card, all that history was gone.
In retrospect, I should have asked her to add me as an authorized user to her account. If you are the one being added as an authorized user, you’re able to ‘piggyback’ off of someone else’s established credit line. The authorized user can receive statements and pay their own bill, but ultimately, the main card user is responsible for any charges made by authorized users. Personally, I would only give out a card to someone I trust since in the end, I’m on the hook if they don’t pay.
There are a lot of stories out there of boyfriends/girlfriends(or even husbands/wives) being added as authorized users and racking up the bills when things go south. If you check your accounts daily, or weekly, or even monthly with Mint you don’t need to worried about this though. I would only add someone as an authorized user that you trust or that you dont mind staying on top of. If you’re the one adding authorized users, remember that you are assuming all of the risk.
How Does It Help Your Score?
Every time you add an account to your credit history, your score will increase. Contrary to popular belief, the more accounts you have the better(as long as they are managed responsibly). This shows to the credit bureau your trustworthiness since so many different lenders are willing to extend you lines of credit. When you become an authorized user, you will be issued a brand new card with a new 16 digit number and even a separate billing statement.
Depending on the average age of your accounts, adding an authorized user can help this facet of your score. If you are added onto a card that has a 15 year credit history, this will now factor into the calculation of your average age. And the same thing goes for the credit limit. If you can find someone with an extensive credit history and a high credit limit(think parents!), you should ask them nicely to become an authorized user on their account. You don’t even have to use the card, but just having it on your history will help a ton. But remember, if they ever close this account your account will be closed too, thus negatively affecting your score.
No Credit Check? No Way
Almost all of the benefits of adding an authorized user go to the authorized user, fortunately or unfortunately, depending on whom you are. Most credit card companies won’t even ask for a social security number for the authorized user. In fact, they claim they won’t even perform a credit check when you add an authorized user, all they ask for is a name and date of birth.
I have always thought you needed a social to get a hold of anything credit related, but apparently I was wrong. I signed up for a department store charge card once and although I gave them my address, I did not give them the correct social security number. But somehow, this card ended up on my credit report, haha! So even though you don’t give out your social, you can still expect it to show up on your credit report.
Real Life Experiment
I was curious to see how the whole process worked so I decided to add my girlfriend to my AMEX Gold as an authorized user. It’s a charge card, so there’s no monthly limit, but I wanted to see how it would affect her score. I added her as an authorized user on 10/1 and all I gave AMEX was her name and date of birth. I specifically asked them if there would be a credit check and they told me NO.
A few days later, I got a Credit Karma notification that an account had been added to her credit history. Sure enough, there was no inquiry either. When I pulled her credit report from Annualcreditreport.com I saw a new account with Amex with an opening date of 10/1/12. So it looks like, TransUnion at least, did not give her the date that I opened the account(two years ago). I think this aspect may vary by card issuer and credit reporting company though.
After all was said and done, her score went up four points. I think it definitely would have helped more if I added her as an authorized user to a card with a high limit and longer history. I think I may have actually hurt her score a little bit in the average age department, but I helped it in the total number of accounts. Overall, it was a good experiment and I think I’ll have to do another with a different card, with her permission of course.
Readers, have you ever added someone as an authorized user? Did it help your score, help their score or hurt their score? Let me know so I don’t have to keep experimenting with my girlfriend’s credit history.
-Harry @ PF ProTags: AMEX, Annual Credit Report, Credit Karma