Adding an authorized user can help someone build their credit. Here are some things to consider to decide if it’s right for you.
If you’re looking to help build someone’s credit, adding them as an authorized user on one of your credit cards is one option. An authorized user means that someone will have a card with their name on it and can make purchases, but they aren’t a co-signer of the card.
Their credit won’t affect yours if you decide to add them, but being an authorized user will be added to their reports, and could help boost their credit score.
There are a few things to consider before adding someone. Keep reading to see how this can impact you as the primary owner.
You’re Responsible For The Charges
The primary user of the card is responsible for all purchases made on the card. For example, if the authorized user has agreed to pay $500 on the statement, but doesn’t give you that money, you’re still responsible for paying.
Some companies will let you set a limit to the amount an authorized user can spend, making it easier to control how much you’re willing to pay. It’s a good idea to talk this over with the person you’re planning to add ahead of time to set some expectations. You can even put the agreement on paper and both parties can sign.
You’ll Increase Your Credit Utilization Ratio
A credit utilization ratio is the percentage of your credit limit that you’re actually using. By having two people on the account, you may see the amount borrowed increase if there’s also an increase in spending and you’re not paying off the balance in full each month. A good credit utilization rate is usually less than 30% – anything over that can negatively impact your credit.
Make sure you discuss this with the authorized user, so they understand how this could affect both of your credit scores.
It Could Hurt Your Credit Or Theirs
Depending on your spending habits, it might not be a good idea to add someone as an authorized user to your credit. Missing or late payments and high balances will have a negative impact on both credit scores.
On the other hand, if they max out your card and create debt in your name, your credit will be adversely impacted.
It Might Strain Your Relationship
If things don’t work out or you need to remove them from your card, it might cause problems in your relationship, especially if it’s a friend or significant other. It’s important for both parties to understand all potential outcomes.
Just like anything else, adding an authorized user has pros and cons. Consider all options and talk it over with the person you want to add before making any decisions.