Adding An Authorized User To Increase Credit Scores

What is it? Does it increase credit scores? How does it work? Is it Effective?

The practice of adding an authorized user to your credit card to help someone build his credit or increase her credit score has been around for a long time. It was originally most prevalent with parents trying to help their children with their credit history. This is also very common among spouses, for both convenience and for one spouse to help the other with their credit worthiness. Even partners, other family members and close friends frequently made use of this valuable arrangement.

Though adding an authorized user to the card of an individual with great credit can be an excellent method for building credit and increasing the authorized user’s credit scores, it isn’t always effective, and it shouldn’t be used in every situation.

When the practice moved into a profit making endeavor, the term piggybacking began to crop up. This is very borderline activity and greatly frowned upon by lenders. Moreover, FICO and most card issuers began taking steps a few years ago to discourage and invalidate this practice for non-legitimate authorized users seeking to defraud the card issuers with artificially elevated credit scores.

This is a very involved subject and to best explain all the ins and outs, and the pros and cons, it’s necessary to first explain some basics.

Joint Accounts vs. Authorized Users

A Joint Account and an individual account with an authorized user are two entirely different credit card arrangements. Both set-ups can help build credit in a very similar manner, but the legal liabilities are quite different. This impacts how both parties’ credit may be impacted.

Joint Account

Both individuals on a joint account are responsible for the debt incurred. When applying for the card account, the credit of both parties is evaluated to determine eligibility, annual percentage rate, credit limit and other account terms and conditions. Both card holders are owners of the credit card account. They share the legal responsibility, privileges and accessibility. Any late payments, defaults and other card activity is shared by both individuals. Either cardholder can make changes to the account without the permission of the other. However, both parties are still legally obligated to fulfill the terms and conditions of the card and any changes made by either party.

Authorized User

If you have a credit card and add someone as an authorized user, you are and will remain the primary card holder. The privileges and responsibilities of your authorized user are limited – though this limitation does vary from one card issuer to another. Ultimately, as the primary card holder, you are the responsible party and the owner of the account. Only your credit history is reviewed when your card issuer determines your account terms and conditions, to include the APR, credit limit and any special offers. Your credit card issuer will turn to only you to pay your card bills and hold you accountable for any account activity. If your authorized user runs up your card limit, the issuer will not require him to pay the bill. That falls to you. On the other hand, as the primary card holder, only you can make changes to your account, which, dependent upon the card issuer, includes limiting the amount of credit available to your authorized user and removing him from your card should you choose.

More on Joint Accounts

Joint accounts have various benefits, and building credit is definitely one of them. Though this method is more difficult than simply adding an authorized user to the account of someone with an excellent credit history.

You can create a joint account in one of two ways:

1. Apply together at the origination of the credit card account. This is fairly common with spouses and couples who have merged their finances and wish to apply for a new credit card. Another popular motivation for this is to help someone you trust get a better rate, build their credit and increase their credit score.

• For example, a college student may need a credit card for school expenses and has limited or no credit history. A parent or grandparent may be willing to apply for the card jointly so that the good credit history of the older individual has a positive impact on the card terms. And by allowing the younger family member to be an actual account holder, rather than merely an authorized user, he understands that he is responsible for paying the bills and hopefully learns good credit habits from this experience.

2. Change your individual account to a joint account by “re-applying” as joint account holders. If you already have had a credit card for a period of time and you wish to add another account holder, you will need to seek the approval of your card issuer. At that time, the credit histories of both of you will be reviewed to determine acceptance. Again, this would be typical when you marry or merge your finances with your significant other. The benefit to the new account holder is an automatic credit history based upon your prior card history and usage.

• For example, a woman has had a credit card for five years with an excellent credit and payment history, a $10,000 card limit and a balance of only $1,000. She marries and her spouse has no credit history. They re-apply as joint applicants on the card. They are approved because the husband has nothing negative, just no history. But once he is approved, he has an instant history – the same as his wife’s. Now his credit report shows that he has had a credit card for five years with a low balance and a great utilization rate. Voila! Instant credit history.

Bear in mind that there are potential downsides for the original card holder. The most obvious one is the possibility of default or poor payment habits by your new joint account holder. This activity will significantly impact your credit score in a negative manner. A second, less obvious, problem can occur if your relationship ends. Once your spouse or partner is on the card, he’s essentially on there for good. If the relationship is over, who’s to say your joint account holder won’t start running up the balance and failing to pay? Even if he maintains the card in good standing, if his other credit activity starts declining, this can impact your joint account – the card issuer may decrease your credit limit or cancel the account altogether. Even if you both agree to close the joint account when the relationship ends to avoid these issues, the loss of this credit line will hurt your credit score, especially if you had a high credit limit – say $20,000 – and low utilization rate.

Despite its popularity among many couples, joint card accounts are to be discouraged. Your credit score is a valuable commodity. In spite of all your best efforts, the actions of another individual can send it crashing down. The smart option is to remain in control of your own credit, on your own.

Becoming a Guarantor

Please note that there is a difference between a guarantor and a co-signer or joint account holder. A guarantor agrees to take over the card holder’s debt if she fails to pay. With this arrangement, the guarantor usually does not have charging privileges on the account. This is often the case when a parent becomes a guarantor for a child under 21 who has limited or no income, but the parent wants the child to have a card for emergencies and/or to build individual credit. Many card issuers do not offer this option. Some banks prohibit joint accounts and co-signers as well.

• Bank of America allows guarantors for applicants between the ages of 18 and 21. The card issuer also allows co-signers/joint accounts.
• Discover and Wells Fargo allow co-signers/joint accounts for card holders.

After the card holder has established a sufficient credit history and reliable income, you can both request that you be removed from the card account as its guarantor. The card issuer will run a credit check to ascertain if the card holder qualifies to continue with the card account without a guarantor.

See Rules on Reporting Credit Card Household Income on Applications to learn more about how income affects applicants between 18 and 21 and those over 21.

How Being Added as an Authorized User May Increase Your Credit Score

Let’s assume you have either no credit history or some dings on your credit report that have lowered your credit score. If you have a significant other, spouse, other family member or close friend with excellent credit and at least one long term credit card, you may be able to increase your credit score by becoming an authorized user on their card account. You actually get to “piggyback” on the credit of this primary account holder. In this way the good credit history for the primary card holder’s account is added to the credit history of the authorized user. Once this information is added to the AU’s credit report, it has the desired effect of building credit or increasing the AU’s credit score.
To understand how this works, let’s explain a bit about credit scores.

Fair Isaac & Company – FICO Scores

Fair Isaac & Co. (FICO) analyzes the credit history of consumers to determine credit scores identifying what type of “risk” they would be to lenders. Your credit worthiness is tied to your FICO credit scores, ranging between 300 and 850. The company looks at a wide range of criteria to compute your FICO scores for mortgage lenders, automobile financing companies and consumer credit card issuers:

• Your payment history
• Debt – How much you owe and how much credit is available to you (your utilization rate)
• How long you’ve had credit
• Types of credit and lending accounts
• New credit/inquiries

This information is obtained from the three major credit reporting bureaus – Experian, Trans Union and Equifax.

FICO-08 Scores and Authorized User Accounts

Originally, FICO used authorized user accounts when calculating your credit score. The account histories of these credit cards were reported on the credit reports of both the primary card holder and the AU, and FICO made no distinction between whether you were the authorized user or the primary owner on the reports. But with the increased popularity of “credit card piggybacking” and the outraged outcry from the lending community, FICO decided to make some drastic changes. With the introduction of FICO 08, the company announced they were going to stop including authorized user accounts altogether.

However, this too caused an uproar. This time from legitimate authorized users, like children, partners, spouses and other authentic individuals who stood to lose out with their credit scoring due to the removal of their authorized user status from their credit history. For many this would send their credit score plummeting or even eliminate it completely.

In response, FICO compromised and devised a computation method that uses authorized user accounts in its scoring analysis, but devised in such a manner that helps control credit score tampering. The company is very hush-hush about this exact formulation. However, reports show that this practice still helps the credit scores of most legitimate authorized users.

Raising Your FICO Credit Score as an Authorized User

When you become an authorized user on your spouse’s account, it’s added to your credit card report. If you are added to the account of someone else, like a parent or significant other, this credit card account may or may not be added to your credit reports*.

When the card issuer does report authorized users, it typically reports the card usage, past payments and all aspects of the card history by the primary account holder on your credit report as though this history is part of your credit history. Your score is recalculated to reflect this “new” credit history and activity. This is how your credit score gets boosted.

1. Credit History and back dating
   • If the “new” card was opened far earlier than any you own, this gives you a much more established credit history. This is due to how the card history appears on the credit report of the AU. Typically, it shows up as though the AU has had the card for many years (showing the origination date that the primary card holder opened the account instead of when the AU was added.) This is called back dating and it is the desired method of reporting when you are an AU.
   • Not all card issuers back date AU accounts. Some report the history only from the date the AU was added to the card account. This will not have the desired effect on your credit history.
2. Average age of your cards
   • If you already have two or three credit cards that are only a year or two old, adding this “new” card with a much older history will improve your average age.
3. Utilization rate
   • If your credit cards have low credit lines and you have used most of your available credit, your utilization rate will be fairly high – not a good thing. Now you add the “new” card to your credit history. Ideally it has a much higher credit line and a very low balance. This lowers your utilization rate immensely.
   • When optimized, all three of these factors can increase your credit score by 100 points or more.
   • Simply boosting your credit score is not always sufficient to qualify for other credit on your own. Card issuers will often look at additional factors as well to determine whether your score reflects your real credit history. In these situations, they typically like to see that you have other cards on your own.

Bear in mind, only the information about the card account that you are now on as an authorized user is reported on your credit history. No other credit information or history of the primary cardholder is added to yours. Likewise, none of your credit history is added to your primary cardholder’s credit report. Only the activity reflected on the card you have been added to will be added to both your credit reports – good and/or bad.

*The Equal Credit Opportunity Act of 1974 requires card issuers to report a spouse’s authorized user information. For other authorized users, reporting is at the discretion of the issuer. If you aren’t the primary account holder’s spouse, he should contact his card issuer before adding you to learn whether they will report your information as an authorized user to the credit agencies. See Credit Score Boosting Tips for helpful information on ensuring this information will be added to your credit report as an authorized user.

VantageScore

Though not the only game in town FICO has such a dominance in the market, at this point, it may as well be. Its only competitor at this time is VantageScore. This credit scoring model is a venture created in 2006 by the three main credit reporting agencies. It too uses a scale ranging from 300 to 850. VantageScore doesn’t use authorized user accounts in its credit scoring calculations and never has. Because creditors and lenders still don’t rely on a VantageScore when issuing credit, how AU accounts are dealt with here is inconsequential. We only mention it in case you have heard of VantageScore and wonder about its impact – NONE.

Some of the Good and the Bad with adding an Authorized User to a Credit Card Account

Clearly, there are two viewpoints on this topic: the card holder contemplating adding an authorized user and the individual seeking authorized user status. Essentially, you could divide these points as the Pros and the Cons. But in all honesty, there are good and bad effects for both the primary and the AU, as you can see here:

1. For the Primary Account Holder – the Cons
   • Legal responsibility – As the owner of the account, you are liable for any charges on the card. This includes those made by your authorized user.
   • Impact on your Credit Score – Any activity on your “shared” credit card account impacts the credit scores of both you and your authorized user. Therefore, if your authorized user behaves irresponsibly and you are unable to stay current on your bill due to this, your credit will suffer along with his. Additionally, running up a large balance damages your FICO score as well, increasing your utilization rate.
   • Personal relationship issues – Money issues have destroyed many a relationship, be they with family members, friends, or lovers. Keep this in mind when contemplating adding an authorized user to a credit card. If things go wrong, the ensuing fallout may ruin your relationship.
2. For the Primary Account Holder – the Pros
   • Control– As the primary card holder, you maintain control of your account. You can limit the card usage of the AU, and even have her removed from your account if and when you choose. As a matter of fact, you don’t even have to provide your AU with a card. You can make her an AU “in name only” and allow her to do no more than merely reap the benefits of your good card credit history.
3. For the Authorized User – the Pros
   • Increased credit score – Being added as an authorized user to the credit card of someone with excellent credit and a long history with the card can increase your credit score by 50 points or more.
   • Experience as a card holder – Used correctly, authorized user status on the credit card of someone with good credit can teach you how to be a responsible account holder, to budget wisely and to experience the good habits of that individual – essentially, the reason she has excellent credit.
   • Emergencies – This provides you with assistance should you experience an emergency, such as a break-down or being stranded somewhere.
   • Convenience – A credit card means you don’t have to carry around large amounts of cash, it allows you to keep track of your spending, and it gives you and your loved ones piece of mind.
4. For the Authorized User – the Cons
   • Negative impact to your credit – If the primary card holder doesn’t pay on the card, makes late payments, maxes out the card or behaves in any other negative manner with this credit card, it will directly impact your credit. You would need to remove yourself from the card immediately. And since you don’t have any control over the account, this could pose a problem.

Credit Score Boosting Tips

When adding your spouse, partner, family member or friend as an authorized user to credit card accounts, there are some tips to help ensure your AU is maximizing the opportunity to increase his/her credit score.

1. Check whether your card issuer will be reporting the card on your authorized user’s credit report.
   • All major card issuers have some type of reporting procedure – you need to determine what it is. If you have a card through a very small bank, you need to confirm that the account will be reported for your authorized user.
2. Does your card issuer require your AU’s social security number?
   • This is a sign that this info will be reported on the AU’s credit history. Without an SSN, the information may still be reported if the AU has other cards and the same address as you, the primary. If not, the credit agency probably won’t be able to locate your AU and therefore, nothing will be reported.
   • If your AU has no credit history at all, taking his SSN is very important. Reporting this information allows the credit agencies to open a new credit file for your AU. And if the issuer backdates the information, your AU has an instant impressive credit history.Remember, you want your card issuer to back date on the AU’s credit report.
3. Does the issuer ask for the AU’s address?
   • Without this information, the issuer will report the card tied to the primary card holder’s address, even on the AU’s credit report. If it’s different from your AU, such as your child living away from home, two addresses will appear on the AU’s credit report. This can be a problem if your AU doesn’t have any credit history of his own because when your AU tries to apply for a card of his own, there will be a conflict with the addresses. This leads to a non-instant approval application and a subsequent review by an actual person, who will look much more carefully at the history than a computer, and will likely determine that difference between your history as a primary and your AU’s non-existent history.
4. When the issuer reports the card, does it do so by back-dating to when you originally opened the card account or as a new card for the AU?
   • The card issuer that back-dates offers the best credit boosting option for your AU.
   • The policy of American Express is no back-dating. Instead, the age of your AU’s account reflects when he was added to your card.

Piggybacking – Aggressive non-approved method of selling authorized user spots to boost credit scores

When discussing the practice of adding an authorized user to a credit card to increase credit scores and help build credit, the discussion wouldn’t be complete without a description of the more aggressive, piggybacking practice.

Piggybacking credit uses the process of adding someone as an authorized user on the credit card account of a primary cardholder with excellent credit for the sole reason of building credit or increasing the AU’s credit score. Another distinction is that the authorized user and the primary cardholder frequently don’t even know each other, let alone have a personal relationship.The entire “transaction” is one of profit.

Prior to 2007, this practice became a popular scheme for credit repair companies. They capitalized on the loopholes available at the time to artificially boost the credit scores of consumers with bad credit. They charged these consumers fees to add them as authorized users to the credit cards of strangers who were purported to have excellent credit scores and a great credit history on the cards to which they were added. Once their credit scores were falsely elevated, these individuals were then able to apply for and qualify for loans and credit, with interest rates they previously would have been ineligible for.

The consumer AUs never actually received or used the credit cards for the accounts they were added to. Cards for authorized users are sent to the address of the primary card holders and AU’s don’t have privileges on the accounts to change the shipping addresses.But access to the card account was never the motive anyway. “Fixing” their credit through this temporary arrangement was the only motivation.

After the housing crisis, lenders expressed outrage at the practice, complaining that many of their loans were the result of these fraudulently inflated credit scores. In response to the ensuing uproar, Fair Isaacs & Co. proposed a change to the way FICO scores dealt with authorized user accounts. They initially proposed a change through FICO 08 wherein no authorized user accounts would be included on credit reports and the resulting credit scores.

However, the Equal Credit Opportunity Act requires lenders to consider all accounts that spouses are permitted to use together when determining the credit worthiness of an applicant. Additionally, the card issuers don’t actually frown on legitimate authorized user accounts – where the primary cardholder has a personal relationship with the AU, nor did they wish to penalize these individuals by removing years of good credit history with the removal of their AU accounts from their credit reports.

So Fair Isaacs went back to the drawing board and came up with a mostly secret algorithm devised to identify and reject fraudulent, for-profit AU accounts, while allowing legitimate AU accounts to remain on the user’s credit report, which is essentially where we still stand today.

Piggybacking Credit 2014

Many consumers wonder whether becoming a piggybacking credit card authorized user will still work to fix credit, and if piggybacking to improve a credit score is even still legal. Certainly, piggybacking credit repair has fallen out of vogue and it has become far more difficult for piggybacking credit card companies and consumers to use this tactic as they used to. However, where there’s a will, there’s a way. In many instances, a consumer with bad credit probably has a girlfriend or boyfriend, or at least one personal friend who would be willing to help by allowing his friend to piggyback on his credit card account as an authorized user, thereby helping improve his friend’s credit.

There are still companies offering piggybacking to raise your credit scores and many consumers are still actively piggybacking for better credit. Though results are usually disappointing and short-lived at best. The practice itself is borderline illegal. The clearest evidence of this gray area is the following statute from the Credit Repair Organization Act:

No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.

So a credit repair company charging a consumer to add him to someone’s card account as an authorized user in order to “repair” his credit would be in violation of this statute.

Mortgage lenders have also strenuously expressed the belief that piggybacking to increase credit scores is a form of fraud, which is defined as follows:

To obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of a financial institutions by means of a false of fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years or both.

Though obviously not clear cut, there’s enough evidence to suggest that piggybacking to falsely hike up your credit score through a for-profit credit repair company isn’t a practice totally above board. Moreover, with the changes FICO 08 has made in respect to “non-legitimate” authorized user accounts, it hardly seems worth the effort to even risk it.

Adding an Authorized User for Credit Building FAQ

The following information is not provided by the banks and card issuers, but through personal user reports.

What is an authorized user on a credit card?

An authorized user has the ability to charge on the credit card, but cannot make changes to the account, nor is the AU legally responsible for paying the balance.

Does adding an authorized user affect credit scores?

The credit score of the AU will most likely be affected if the card issuer reports the card history to the credit reporting agency. When this is the case, the payment history, balance, age and all other information regarding the card are added to the AU’s credit history as if were his/her own. It does not impact the primary cardholder’s credit score.

Does adding an authorized user build their credit?

When the current credit card account and its history reflects good to excellent credit habits and activity, being added as an authorized user can help build the AU’s credit.

What are the rules when adding an authorized user to Chase Credit Card Accounts?

Chase does not collect the SSN of the AU, nor the AU’s individual address. If the addresses of both the primary card holder and the AU are the same, the card history of the primary will be reported on the AU’s credit report. When this is the case, Chase does back date the “new” card to the original date the primary cardholder opened the account.

How does Chase view AU account credit history for its card applicants?

Despite an elevated credit score, Chase will usually decline an applicant if his credit history doesn’t reveal other cards of his/her own. One tip to help overcome this hurdle is an established relationship with Chase, such as a savings and checking account.

What are the rules when adding an authorized user to American Express Credit Card Accounts?

AmEx collects the SSN of the AU, but doesn’t collect the AU’s individual address, nor does this card issuer back date.

How does American Express view AU account credit history for its card applicants?

AmEx will approve newbies with no more than an AU account on their credit report, but only for their lower end cards. Additionally, the AU account must have a good history and a low utilization rate.

What are the rules when adding an authorized user to Discover Card Accounts?

Discover collects the AU’s SSN, but not his/her individual address. Discover back dates the history of the “new” card on the AU’s credit report.

How does Discover view AU account credit history for its card applicants?

Discover usually allows AUs with no cards of their own to easily qualify for their low end cards.

What are the rules when adding an authorized user to Capital One Credit Card Accounts?

Capital One is a yes all across the board: the issuer collects the SSN and the address of the AU and back dates.

How does Capital One view AU account credit history for its card applicants?

It’s fairly easy to qualify for a low end Capital One card with a high credit score from an AU account, even when the AU has no individually owned cards.

What are the rules when adding an authorized user to Citi Credit Card Accounts?

Reporting an AU’s SSN is optional with Citi, so be sure to request this when you add an AU to your primary card account.Citi does not report the individual address of an AU. Citi also backdates for AU accounts.

How does Citi view AU account credit history for its card applicants?

It’s difficult to qualify for a Citi Card based solely on an AU account. But if the AU has as least one individually owned credit card as well, this makes a big difference in qualifying for even Citi’s higher end cards. This is the case even if the AU’s individual card is fairly new.

What are the rules when adding an authorized user to Barclaycard Credit Card Accounts?

Barclaycard collects the AU’s SSN, but not his/her individual address. Barclaycard back dates AU accounts.

How does Barclaycard view AU account credit history for its card applicants?

Barclaycard is pretty good about approving AUs just based on their improved score via their AU history. This is the case with even their high end cards, such as the Barclaycard Arrival Plus.

What are the rules when adding an authorized user to Bank of America Credit Card Accounts?

BOA acquires the AU’s SSN, but not his/her individual address. BOA back dates.

How does adding an authorized user affect my credit, as a primary card holder?

When you add an authorized user to your credit card, simply adding this person onto your account in this manner will not affect your credit. The AU’s credit history is not added to your credit history at all. The main way this practice would affect your credit is if your AU ran up a high balance on the card that you were unable to pay. This bad credit activity would then negatively impact your credit worthiness and your utilization rate.

How can I lessen the impact to my credit as a primary card holder if my AU acts irresponsibly?

The best way to tackle this problem is before it happens. If you are simply trying to help your AU boost his credit, it’s not necessary to even provide him with a credit card. However, if you want him to have charging privileges, check whether your card issuer allows you to set specific limitations for your AU, and then use these safeguards. This may include setting a smaller credit line for your authorized user. The actual larger card limit is what will be shown on his credit report, so setting a smaller charging limit won’t impact his credit score. Finally, if you do see any problems beginning to crop up, remove your AU from your credit card immediately.

Does adding an authorized user affect their credit?

This depends on whether the card issuer reports authorized user accounts to the credit agencies and how.

Can I add anyone as an authorized user?

Though you may add whomever you wish to your credit card account as an authorized user, because of the importance of a good credit history, this decision should be carefully reviewed and well-though out. Make sure you have a closely established relationship with your AU and that you trust the person implicitly.

How can I remove an authorized user from my credit card account?

This is usually fairly easy, requiring no more than a phone call to your card issuer to instruct them to remove your AU. Some card issuers even allow you to take care of this online.

As a primary card holder, how can I remove an authorized user from my credit report?

This is kind of a trick question since your AU and his credit history is never actually on your credit report. Your card history may be added to your AU’s credit report as though it were his/her own, but the reverse is not true, nor is any reference made on your credit report that you have an authorized user. Once you remove the AU from your card, no future card activity will be reported to their credit history .

As an authorized user, how can I remove the primary card history from my credit report?

If you become an unauthorized user on someone else’s credit card because they have a good credit history with the card, but then they started paying late, defaulted or maxed out the card, this will mess up your credit score. When this happens, you want to have yourself removed from the card as soon as possible. It’s also a good idea to have the card removed from your credit report. To accomplish this, contact the card issuer and then the credit reporting agencies to explain that you were an authorized user and the you want the card history removed.

Does adding an authorized user to a business credit card help the user’s credit?

Business card issuers do not report business AU accounts to credit agencies. Therefore, this practice will not be helpful or useful for credit building or to increase a credit score.