Credit

Building and Improving Your Credit in 2013: The Authorized User Strategy

bad credit

Welcome to January 2013, otherwise known as the New Year’s Resolution time. It’s been my long experience that one of most common resolutions is to improve your credit.

In fact, it’s right up there with losing weight, getting out of debt, quitting that smoking habit and finding a new job.

There is only so much you can do to improve your credit. “Actionable” is the key word and there are a limited number of actionable ways to improve your credit.

For example, if your credit reports and credit scores are being scarred by a former bankruptcy, what can you do about it?

The record of a bankruptcy filing will be on your credit reports for up to 10 years and there’s very little you can do to change that, other than hiring a credit repair company to try and get it removed.

Sure, you can try to counterbalance the negative impact by doing all other things well, but you won’t be able to truly negate the affect of bad stuff while it’s present.

You can, however, help improve your credit scores quickly if the culprit is credit card debt.

Credit card debt is problematic, but what’s additionally problematic is when your credit card debt creeps too close to your credit limits.

This is the infamous revolving utilization percentage that we’ve addressed here several times.

Enter: The Authorized User Strategy

Consumers can help their credit scores by becoming what’s referred to as an authorized user on someone else’s credit card account.

When you’re an authorized user, the account is added to your credit reports. And, if the account is old, paid on time and has a low balance relative to the limit, it will likely help your scores.

The authorized user strategy is modestly controversial, and I’m being a bit liberal with that designation.

Several years ago, credit repair companies figured out that they could act as brokers and connect consumers who wanted better credit scores with consumers willing to add complete strangers to their credit cards as authorized users in exchange for a few bucks.

FICO added logic in their newer credit scoring systems that addresses that method of “piggybacking.”

The Benefits of Piggybacking

Still, if you can convince a parent or loved one to add you to their card, then you will likely see immediate benefits when it is reported to the credit bureaus.

The best news about this strategy is that there is no blow back on the primary cardholder and the newly added authorized user is not liable for any of the card’s purchases. In fact, the authorized user never even has to get a physical credit card.

When you add someone as an authorized user, the card is mailed to you, the primary account holder. You can choose to shred the card or give it to the authorized user. And, if you give them the card and you don’t like how they’re using it, you can have them cut off.

Finally, the authorized user has no “permissions” on the account, which means they cannot call the card issuer and have a new card mailed to them. It’s really like having a credit card with training wheels.

Potential Liabilities

If the primary cardholder gets into financial trouble and starts missing payments or runs a balance too close to the credit limit, that activity will be reported to the credit reports of the authorized user and it can definitely lower their credit scores.

At this point, the authorized user would likely want to have their name removed from the card, which, in turn, will lead to it being removed from their credit reports.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.