Does adding someone to a credit card as an authorized user help their credit?
Posted by | Posted in Credit Help | Posted on 07-07-2010-05-2008
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Just so I don’t get flamed about the dangers of adding someone else to a credit card… we are soon to be married and our money is already in a joint account. We are both trying to increase our credit scores in preparation of purchasing a house. We have just paid off all credit cards, so that will be good on credit… and we are going to leave the accounts open with little or no balance.
For a while, the credit scoring company FICO was counting it as a positive thing if someone with no or a low credit score became an authorized user on a credit card of someone who had a high credit score. Thus, the common recommendation not too long ago was that parents consider making a college freshman an authorized user on one of their credit cards as a way to start off the teen’s credit history on a high note.
However, a few months back I saw a TV news report about companies that had set up solely to recruit people with good credit scores into opening an extra low-limit credit card. Then, the company would charge people with bad credit scores a monthly fee and then pay the people with good credit to put the bad credit strangers down as authorized users on their extra credit card, simply so the credit scores would go up for the bad credit people. (The company also wouldn’t give out the card or the card number to the bad credit people directly, to reduce the chance of them running up charges that the good credit person would have to pay.) One guy in the news report had a credit score above 800, I believe, and had a credit card with 17 strangers as authorized users, and he was getting paid about $1000 a month or so, as I recall, just for letting people hitchhike on his good credit score.
Needless to say, FICO was not happy about the rise of this kinda of scamming of their credit scoring system, and the news report back then was saying that FICO was planning on changing their rules to not make this feasible.
I don’t know what happened to the rule or what will happen to it, but I wouldn’t count on adding your fiancee’s name to your cards and/or yours to hers as a big boost to your scores. Probably not as big of a boost that you got by paying them all off and leaving the lines of credit open.
I added my husband as an authorized user on my Mastercard when we were married, and I’m an auth user on one of his cards. Our individual credit reports don’t show the cards that we are authorized on, only the ones where we are the account owner.
When we were first married I tried to have our credit accounts listed with both of us as owners, but no one would let us do that. They seem to want one person they can go after if something goes bad.
Even more interesting, when we bought our house, my husband was turned down for a furniture store credit card due to student loan debt, low income, and the new mortgage. I immediately applied for the same card in my name and was instantly approved. So credit agencies seem to have trouble (or don’t want to) see a married couples assets and liabilities as joint.
As an additional tip, whether your spouse is or is not an authorized user on the account, contact the credit card agency and have them make a note on the account that your spouse is allowed to act on your behalf — i.e., s/he can make balance inquiries, change addresses, contest charges. You wouldn’t believe how strictly these people interpret privacy laws! Capital One wouldn’t even tell me HOW my husband could apply for his "No Hassle" rewards, even though I was authorized on the account. They claimed that the credit account authorization was completely separate from the rewards account!
Don’t carry any balances on those credit cards. Use them and pay in full every month. Rotate the cards so that every one of them is used on a regular basis. You want to show regular use and on time payment on all those cards to get the best for your score.
Authorized user accounts show on your credit report but only count in the score for spouses and children. Wait till after you are married before you start adding authorized users.
Adding someone as a co-signer on your credit card will only be beneficial if you both have good credit scores. If the co-signer has a lower credit score than you do its not worth it to co-sign with them.
Credit scores affect your ability to receive a student loan, get a mortgage on a house, and have an auto-loan. Make sure to keep your credit score high and make sure to read this article http://www.freescore.com/credit-and-marriage.aspx for advice on marriage and credit.
"Authorized User" usually means nothing more than an ability to access/change the personal information on your credit card account and are authorized to use the card.
An authorized user doesnt have to go through a credit check to be added AS an authorized user, which is a big sign because almost nothing affects your credit that doesn’t require a credit check.
What you can do is co-sign for a loan for her, which would be at a loan rate according to your credit, but both of you share the postive/negative rating caused by the loan payments. This could be co-signing on a store credit card, small bank loan,… but again, its effecting both of you,… so it could pull her credit rating up, or drag yours down, depending on her fiscal responsibility.
But, really, it sounds like you’re getting married, so you’re not too worried she is going to run away with a loan in your name or anything… so that could be something to look into.
…although it would seem to me it might affect your rating. Good job paying off your credit card debts! Now that I have answered your Q, let me add a couple observations.
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I’ve been happily married for over 20 years. I am not a professional attorney or banker. But, I have done a decent job of managing our collective finances since we’ve been married.
Over the years I have spoken with attorneys and others. Many would counsel against joint ownership of some or all property. That hasn’t stopped us from holding a few significant assets jointly. But, you should realize that marriage (it sounds like you are almost married, but not yet) doesn’t mean all assets have to be thrown into a common pool. It may be advantageous for you individually and collectively for that not to happen. You should also be sure you understand what a joint account means. Don’t get fooled by the title. If you and I open a joint account, and we each deposit $25,000 into it, then the joint account will have a $50,000 balance. You and I know in our heads that the money is shared by us 50/50. Nevertheless, each of us has full authority to access 100% of the money. So, I am fully within my rights to empty the entire account and open up a new account entirely in my name. Now, most married couples don’t do stuff like that except on TV. What is more common is that we open up the joint account. Both of us write checks on that account. You may have more discipline than I. You pay the rent and buy the food. I can swing by the car dealership and buy a nice used Corvette "for us" with our "joint" savings. OK, I think I have beat this to death. Maybe you open a joint DDA/checking account with a small but comfortable balance to pay bills from; but, you retain individual savings under each of your respective names. The downside of joint checking accounts and new marriages is that the person in charge of finances needs to reconcile the accounts. To do so, one needs to ask: "honey, what was that $120.32 check #1035 you wrote on January 13th?" Of course, the spouse understands you are balancing the account. But, it sometime can be perceived as you watching over his shoulder 100% of the time, which was not your intent…been there…
If I were marrying someone with a bad credit history, I would try to do what you are doing–help them repair their "record". But, I would do so in a way that doesn’t risk my own record. Moreover, it could be helpful having someone with a spotless record operating independently. I would think off the top of my head that it would be more beneficial to have the person with the bad credit start out with a small credit line and use it over a couple years with new discipline. If things go well, your spouse has an improved credit rating and yours is still spotless. If things don’t proceed as planned, your spouse still has a troubled rating; but, yours remains clean, giving you both a little more flexibility.
I hope this was helpful. Love is beautiful; money is money. I like to keep them separate. I manage money with my brain (and a little heart); I leave my heart in charge of love (…with a little brain in there to keep me in check…).
PS-upon rereading the answer, I hope you do not think I am suggesting keeping $50k in a checking account. That was just for illustration. Use a no-load mutual fund from a company like Vanguard; if you are planning on using it very soon as a downpayment, perhaps keep it in a more liquid investment which will not risk capital.
Congratulations on your upcoming marriage! Good luck in buying your new home.
For every card you have, even with a zero balance, they deduct the minimum payment they MIGHT require from you ability to pay a mortgage each month. Shut those puppies down! After you get your home, you can go for the cards that offer a great incentive to sign up.
Remember, credit companies are much more interested in how long you paid than how fast you paid…they make more money when you take your time.
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For me it would be an advantage to have fast credit score especially when you both have work and in good salary. As long as you both know how to really use it and make it for your comfort.
Credit companies are much more interested in how long takes you to pay than how quick and efficent you pay. They make more money if you take longer to pay, im sure of it.
Also a very good point from ‘bdancer22′ The key is to rotate the cards so that every one of them is used as regular as possible.
Adding someone onto your credit card depends on how both of your credit scores are. Companies will only care how and if they’re paid on time. If you have a zero balance, then it will only increase your credit. Adding him on won’t really do anything..
Does he have bad credit?
Make sure when you add someone to your card, they know about it. When my friend was asked by her credit card company if she wanted anyone else to use the card, she didn’t realize that person was being “added” as someone who would share that debt. She added her sister simply so her sister could run errands for her using it. When my friend lost her job and couldn’t pay the debt, it then fell on her sister. It was a big shocker and you can imagine the strain it put on their relationship.
From my understanding, it only helps the credit of those who actually opened the credit card. Those allowed to be authorized users just makes it easier for someone with little or no credit to have some. However, the payments and score from that exact card only effect the person who originally applied for it.