Funding
Why “Authorized Users” Are Rarely Worth the Risk THIS CREDIT TOOL IS BEST SAVED FOR A FEW CASE-SPECIFIC SCENARIOS.
Many people believe that being an authorized user will improve their credit score, but that’s not always true.”
MERRILL CHANDLER
M ost people don’t realize how harmful it can be to add someone as an authorized user to your account. Likewise, becoming an authorized user on someone else’s account might not help your credit score or future loan approvals. In fact, it could hurt you in the long run. Understanding how being an authorized user can affect your credit is important, because your actions as well as how you manage others’ accounts can have negative consequences. Let’s take a look at how authorized users work, whether you should trust the people involved in the process, and the risks of
But even the people closest to you can put you at risk. Before you add someone as an authorized user, make sure they keep a low balance on their card (a high balance can hurt your credit) and that they pay their other bills on time. If they miss a payment on one of their other accounts, it can negatively impact the account to which you’ve added that user. Imagine if a child made a mistake on your account— they might keep it secret until they realize the damage it caused to your credit. Here’s a story to illustrate this point: A company was helping a client who wanted to qualify for a Chase credit card. The client worked hard to improve his credit and after a lot of effort, he was
becoming or adding an authorized user. It’s better to avoid it altogether than to do it incorrectly because the dangers can be serious for everyone involved. HOW AUTHORIZED USERS WORK An authorized user (AU) is someone allowed to use a credit card, even though they are not the primary account holder or responsible for the payments. You can either add an authorized user to your account, or you can be added as an authorized user to someone else’s account. It’s important not to confuse authorized users with joint account holders, where
whether you’ll be approved. Lenders don’t approve high-value loans like credit cards, car loans, or mortgages just because you have a good score. Instead, they look at your borrowing habits, which are reflected in your credit profile. Although your score might rise a little, it won’t necessarily make you more “fundable” (qualified for loans). PERSONAL VS. BUSINESS ACCOUNTS You can have authorized users on both personal and business accounts, but the risks are high when you allow someone to be an authorized user on your personal account. On the other
hand, authorized users for business accounts have different rules, and business partners are often authorized users on corporate accounts. TRUSTING THE PEOPLE AROUND YOU Whether you’re dealing with personal or business accounts, it’s essential to trust everyone involved with your credit accounts. A parent who makes their college-age child an authorized user on a credit card for use in an emergency may be one of the few situations where adding someone as an authorized user might be acceptable.
both people are responsible for paying the bills. An authorized user is able to make purchases but is not responsible for paying the balance (although they are allowed to—credit companies will take bill payments from anyone). Many people believe that being an authorized user will improve their credit score, but that’s not always true. With newer versions of FICO software, an authorized user might see a small boost in their score, but in the long run, credit score is less important than most people think. Your credit score mainly affects the interest rate and terms of loans, not
22 | think realty magazine :: january - february 2025
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