Photo (cc) by 401(K) 2013
I recently received this question from a Money Talks News reader:
I’m working to build my credit fast in anticipation of applying for a mortgage within the next year. Should I consider asking someone close to me to add me as an authorized user on one of their accounts? Will this help me build credit? I’ve read mixed reports up to this point. — Danielle R.
Danielle is certainly not the only one confused by how credit scoring models – namely FICO – account for authorized users.
Here’s the answer: Becoming an authorized user on a credit card account can help improve and build your FICO score as long as you’re added to an account in good standing with a solid history and a responsible primary holder at the helm.
Getting added as an authorized user on a friend or family member’s account is actually pretty simple and can be low-risk for the primary cardholder.
When an authorized user is added to an account, the primary card holder, not the authorized user, will typically receive the card (check with the card issuer to be sure). If they never hand it to the authorized user, there’s little risk of that user running up a bill the primary holder will be forced to pay.
So if the goal is building credit, one way to do it is to become an authorized user on someone else’s credit card. And one way to reduce the risk to the primary cardholder is for them to withhold the card.
There are some other issues to consider before deciding to go this route:
- As Money Talks News founder Stacy Johnson pointed out in another post, the card must be issued in your name in order for it to do you any good. “Without a card issued in her name, FICO – generator of the most widely used credit score – won’t count it when they compute her credit score,” he said in response to a mother’s question about adding her daughter as an authorized user.
- Second, while the FICO scoring model might look at authorized user accounts when calculating your credit scores, lenders themselves might not put as much weight on these accounts as you would hope because you, as an authorized user, are not responsible for payments on the account.
- If you can’t find a family member or friend willing to add you as an authorized user and instead resort to “piggybacking” on a stranger’s account with the help of a credit repair agency, FICO says its FICO 8 scoring model is smart enough to figure that out. Its website says:
To protect lenders and honest consumers, the FICO 8 formula substantially reduces any benefit of so-called tradeline renting. That’s a credit repair practice that entices consumers into being added to a stranger’s credit account in order to misrepresent their credit risk to lenders.
- Finally, becoming an authorized user essentially puts the future of your credit scores in the hands of someone else. Make sure you can trust the person adding you to his or her account, and that the account is in excellent standing. Remember, when you become an authorized user, that person’s missed payment becomes your missed payment. Also note that it’s best to get added to an older, more established account if possible.
The bottom line
As long as you’re becoming a legitimate authorized user, the primary cardholder is responsible, and the account you’re being added to is in excellent standing, becoming an authorized user can help you build your FICO score.
If you’re having trouble finding someone to add you to an account, make sure you explain that this will in no way hurt that person’s credit score and that you’re not interested in having a card in your possession.