Credit card authorized users may see credit score go up or down

The old fashioned way of building credit is to start small and work your way up. In years past, a borrower might get a credit card from a small department store, but a pair of socks each month and wait for their “good” credit to show up on their credit report. In time, they could apply for, and probably receive, a major credit card. After that, car loans and mortgages might be available to them.

There is one established way to speed that process up, but the good of possibly getting a huge boost in your credit score comes with one significant caveat - what helps you can also hurt you. A strange quirk of how credit cards work is that anyone may add anyone else to their account as an “authorized user.” This is useful for parents who have children in college who have no credit of their own but might need a card for emergencies, for example. The cardholder needs only to call the credit card company to add the user to his or her account.  The strange thing about the process is that there are generally no restrictions as to who may be added to the account. It may be a relative, or a total stranger; it’s up to the cardholder to decide.

If you should find yourself added to the account of someone who has a good FICO score and is diligent about paying their bills on time, you will receive a boost to your FICO score, and possibly a significant one, at that. It all depends on the cardholder’s history and how much he or she uses the card. This is good; you can see this increase in your own credit rating without having to use the account, or for that matter, even see the card. If your name is on the account and the other person pays on time, you get the boost, just like that. This is known as adding “seasoned credit” to your report.

The downside, of course, is when the opposite happens. If the cardholder doesn’t pay their bills on time, your score gets hurt. Being an authorized user is not like being a cosigner on a loan; you cannot be held legally responsible for the bills if the cardholder refuses to pay. But you will be penalized just the same if your name is on the account of someone who is delinquent in their bills.

Like many other things in the financial world, being an authorized user is a doubled edged sword. It’s a useful tool for building credit that can help you or hurt you, and you may not have much control over which one you get. For that reason, you should be careful about adding your name to someone else’s account and you should be equally careful about whom you add to your own account. If you find that you are a user on an account for which the cardholder is delinquent, you may wish to contact the company to inquire about removing your name as a user.

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