Will Adding Someone to Your Credit Card Boost Their Credit Score?

Jack Prenter, Founder of Dollarwise

When you add someone as an authorized user to your credit card, you're giving them permission to make purchases using your credit account. This action can have an impact on their credit score, for better or for worse.

It's a responsibility that should not be taken lightly because your credit behaviour will directly influence their credit report. If you consistently pay your bills on time and keep your credit utilization low, the authorized user could see a positive effect on their credit score.

However, if you have a history of late payments or high utilization, this could negatively impact both your and the authorized user’s credit scores. It's important for both parties to understand the potential implications before making this decision.

While becoming an authorized user can be a pathway to building credit, especially for those with little or no credit history, it requires trust and communication between the account holder and the authorized user to ensure it is beneficial for both sides.

Key takeaways

• Adding an authorized user to your credit card can help them build credit if managed responsibly.





• The primary cardholder's credit habits will directly impact the authorized user's credit score.





• Clear communication and understanding of credit card terms are essential when sharing credit accounts.

Understanding credit scores and reports

Before you consider adding someone to your credit card, it's essential to understand how credit scores and reports operate, as they're fundamental to credit health.

Components of a credit score

Your credit score is like a financial grade point average, informing lenders about how well you manage your credit. It's calculated using several elements, each with its own weight:

• Payment History (35%): This is the record of how consistently you make payments on time. Missed or late payments can negatively affect your credit score.





• Amounts Owed (30%): Also known as your credit utilization ratio. It reflects the amount of credit you're using compared to how much you have available.





• Length of Credit History (15%): Generally, a longer credit history can be beneficial for your score, as it shows you have experience managing credit.





• Types of Credit (10%): A mix of different types of credit, such as credit cards, retail accounts, installment loans, and mortgage loans, can be positive if managed well.





• New Credit (10%): Opening several new credit accounts in a short period can signal higher risk to lenders and may lower your score.

The role of authorized users in credit building

When you add someone as an authorized user to your credit card, you're giving them a chance to piggyback on your credit history. They'll have a card to use, and your payment habits can influence their credit score.

Benefits of adding an authorized user

• Credit Aging: If your account is old and in good standing, it helps the authorized user as it adds to their credit age, a factor considered by credit scoring systems.





• Payment History: Your consistent, on-time payments boost the payment history on the user’s credit report, which makes up a significant part of their credit score.





• Credit Utilization: The credit limit on your account increases the total available credit for the authorized user, potentially improving their credit utilization ratio when used wisely.

Potential drawbacks for the account holder

• Increased Responsibility: Any spending by the authorized user reflects on your account. You're responsible for paying off whatever they charge to the card.





• Credit Risk: If the authorized user borrows heavily, it could push your credit utilization up, which might harm your credit score.





• Potential for Dispute: Disagreements may occur if the authorized user makes unauthorized purchases or if there’s a misunderstanding about who is paying the bill.

Effects on credit scores when adding someone to your credit card

When you add someone as an authorized user to your credit card, it can help them build or improve their credit score. But this move can also have implications for your own credit health.

Impact on the authorized user's credit

If you're thinking about adding someone to your credit card, it's essential to understand how it affects their credit score.

As the primary cardholder, your payment history and credit utilization—which is the amount of credit you're using compared to your limit—are reported to credit bureaus. This same information will be shown on the authorized user's credit report.

• Payment History: If you always make your payments on time, this can help the authorized user's credit score improve.





• Credit Utilization: Keeping a low balance relative to your credit limit can positively impact the user's score. However, if you carry high balances, it can hurt both of your scores.

Remember, any charges they make will also affect your credit utilization.

Considerations for the primary cardholder

Adding someone to your credit card should be done with care. As the primary cardholder, you're responsible for any charges on the account—even if the authorized user spends more than what was agreed upon.

• Missed Payments: Should the authorized user miss credit card payments, you're liable, and this could harm your credit score.





• Credit Mistakes: An authorized user's financial habits can reflect on your credit. If they use the card irresponsibly, it could have negative consequences for you.

Keep track of the account and communicate clearly with the authorized user about spending limits and payment expectations to limit the risk of credit mistakes.

Best practices for sharing credit accounts

When sharing a credit card account, the primary goals are to help the account holder build credit and manage the account responsibly. It's important to make informed choices and set clear rules for use.

Choosing the right card and issuer

When considering adding someone to your credit card, it's essential to choose a card with a strong payment history and a reasonable credit limit. Big companies like American Express, Chase, Citi, and Discover offer cards that allow you to add authorized users.

Look for a card issuer known for excellent customer service, as you'll want easy access to help if any issues arise.

Check the issuer's policy carefully to understand the terms of shared access. Some cards offer rewards that can benefit both cardholders, but also increase the temptation to overspend. It's crucial to choose a company whose card and rewards policy aligns with both users' financial goals.

Setting clear guidelines and expectations

Before adding an authorized user to your credit card account, craft a clear agreement outlining each person's responsibilities. This should include:

• Bill Payments: Ensure that there are clear expectations about who makes payments and when. On-time payments are crucial as they heavily influence credit scores.





• Spending Limits: Setting a spending limit for the authorized user can mitigate financial risk and prevent the credit utilization from getting too high, which can hurt credit scores.





• Usage Transparency: Regularly review billing statements together to monitor spending and address any concerns early. Transparency helps maintain trust and responsible use of the card.

Remember, while sharing a credit account can aid in building someone's credit, it's a shared financial journey. By selecting the appropriate card and setting defined rules, you pave the way for a positive credit-building experience.

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