Woman Using Credit
Credit: Catalog http://office.microsoft.com

     Remember the time as a young person when you first ventured out on your own.  You couldn’t wait to buy your first car or rent your first apartment.  When you went to the car dealership he showed you a shiny new car and you were so excited as this would be your first major purchase.  Then the salesman asked you that all important question.  Can we pull your credit?  You not knowing any better said with excitement “Please Do!”   Only when he did, you found out that you would not be driving away in that new car on that day because you had no credit.  You left the dealership wondering how someone with no credit gets credit.  This is where for a lot of young people and spouse’s the term Authorized User is first learned.

     What is an Authorized User?  An authorized user is someone that is added on to an account such as a credit card but without the financial responsibility.  This person can utilize the credit without having to repay any monies.  At first look this may sound like a good deal, but let’s take a closer look at what this actually means to your credit.

     First, the advantages; you are building your credit without getting into debt and your credit score will quickly improve as the owner of the accounts continue to make payments on time.

      There is one major disadvantage to becoming an authorized user.  The original borrower’s credit for all intended purposes becomes your credit.  This means if the borrower fails to pay his debt on time or stops making payments and ends up with a collection; this information will also be reported on your credit report.   Think long and hard before allowing someone to put your name on a credit card, installment loan, etc.  The damage that can be done to your credit report can be insurmountable. 

       You may wonder how this bad information gets on your credit report if you are not financially responsible for making the payment.  This is because if the creditor cannot make the borrower pay; he believes that by reporting the information on the authorized user’s credit report that they will pay off the debt to preserve their credit.   

         If you are an authorized user on an account and the borrower gets behind.  Immediately call the borrower and have them take you off of the account.  This will remove the information from your credit report.  If the account goes into collection you will have a very difficult time getting this information removed from your report.  You can contact the collection agency as well as the credit reporting agency to see if they will remove the information, if not you may have to pay the debt to have it removed from your account.  With the above information in mind, there are a couple of other ways to build credit.

  1.  Borrow a small amount of money ($300 to $500) from the bank or credit union that you belong to.  Make your monthly payments on time.
  2. Get a secured credit card.  This card can sometimes have hefty fees and you have to pay money upfront on the card and the credit card company will allow that amount in credit.  Make your payments on time and build your credit.

       I hope this information makes you think carefully about becoming an authorized user on someone’s account.