How to Build Credit History for Authorized Users?

While building credit is tough when one is new to the job market or as an immigrant, there are some strategies that make the whole process easier. Becoming an authorized user to build credit history is one of many such strategies. While many companies allow it and a few companies do not, it is always better to ensure that an authorized user's history is reported to the credit bureaus, before signing up as one.

It is important to note that while authorized users can use the credit history of the original cardholder to build one on their own, they are not held responsible for the debt on that account. The idea being that an authorized user has no control over the account and therefore is not responsible for any debt accrued.

Who is an Authorized User?

As credit becomes increasingly difficult to obtain, one of the simplest and easiest ways to build a credit history is by being an authorized user. It is possible for parents to allow children to become authorized user on their credit card, or for a person to add a spouse as an authorized user. An authorized user in effect, can access the account and share the credit history of the account holder. If the original cardholder has a good credit score, the authorized user can benefit from this. For a person who is just starting out without any credit history, such an opportunity can be a big step towards attaining a good credit score. Better rates on student loans, better insurance rates on automobiles – all this and more is related to your credit history. Being an authorized user can make all this happen.

A Win-Win Situation

As a primary credit card holder, a person can choose to authorize their child or spouse to use the credit account and share their credit history. If the primary account holder loses his job or is late on payments, the authorized credit users can remove themselves from the account without affecting their newly built credit history. On the other hand if everything goes well, the primary credit account holder can terminate the access of the authorized user when the credit history has been established. This gives both parties the freedom and flexibility to ensure that the authorized user can build a credit history.

Piggy-Backing

When authorized users were allowed to build credit history using other cardholder's account, some companies exploited the situation by evolving the practice of "piggy-backing" or "credit renting." Some entrepreneurs would allow individuals to use their services and connect them to people having high credit scores for a fee. The higher the fee that an individual could pay, the better the chances that he or she would be connected to a person with stellar credit scores. Although this was unethical, it was a loop hole which was definitely not illegal. FICO (Fair Isaacs Corporation) tried to eliminate authorized users altogether from their calculations. This move led to an outcry from the general credit card using public as well as credit card companies. Recently FICO announced that it had found a method to allow legitimate authorized users to build credit history off of the primary account holder again.

The Law for Authorized Users and Credit Reporting

According to the Equal Credit Opportunity Act of 1974, all credit card issuers must report credit history of authorized users. While the law is standard, it does not define exactly who the authorized user is. Most credit card companies will report the history if the authorized user is a spouse. Some of them will not report the authorized user's history if he or she is a child. So if an account holder wants to put their child as an authorized user to share their credit card history, it would be prudent to ask the credit issuing company if they will report the activity to the credit card bureaus.