People often ask me how they can start improving their credit.
One of the first questions I ask them is if they have any open revolving accounts. When working towards repairing your credit, “actionable” items improve credit. By actionable, I mean accounts where positive changes occurred.
Examples of actionable accounts are open credit cards, loans, or car payments. Keeping these open accounts in good standing is key when attempting to increase your credit score. Another actionable item can be an item coming off or falling off of your report. But what if you are like I was during my worst financial period? My credit was so bad that I wasn’t approved for respectable credit cards. By respectable I mean the ones that don’t charge you a $100 annual fee, while only allowing a $300 limit and a 30% interest rate. Items were falling off my report. My student loans were in deferment but I did not have any “actionable” items to improve my score. After conducting extensive research, I realized becoming an authorized user was my best bet. An authorized user, also known as piggybacking, is when the primary credit holder adds an additional person to a new or existing credit account. Not to be confused with a card holder, the authorized user submits their social security number and receives the payment history of the account they are authorized for on their credit profile. They also have access to the card yet have no liability to pay. The advantage of being an authorized user is if the person has excellent payment/ card history, it will reflect on your credit report simultaneously boosting your credit score. The disadvantage is that if that person begins to fall behind on payments, that negative information will also reflect on your credit report.
I became an authorized user on one of my father’s accounts. It was one of my last financial requests as I dug myself out of my parent’s pocket and worked on becoming a financially responsible adult. He designated me as an authorized user on the credit card account with the best payment history and a decent line of credit. I did not request access to his credit card because the access was solely for credit building purposes. My credit score increased tremendously as a result of being an authorized user. I received the fruits of his positive payment history and credit limit. Since he maintains a 10% credit utilization rate, my available credit amount increased by a few thousand dollars.
During my research I came across several horror stories. They ranged from parents designating their children as authorized users and awarding their child a card, only for the child to go off to college and charge everything in sight to girlfriends adding a boyfriend as an authorized user and failing to have him removed after the relationship ended…we know how that ends.
The important thing to consider when becoming an authorized user is STABILITY and interest. I don’t recommend asking a co-worker or a boss if you can be added as an authorized user…can we say awkward.
Ask your family. Parents, grandparents, siblings, aunts, etc. Reassure them that you only want access to their payment history to help you boost your credit. But also make sure that they are stable. For instance, if they can’t afford to miss a paycheck , you might not want to become an authorized user on their accounts. Remember if they stop paying, IT WILL REFLECT ON YOUR REPORT! I know my father is invested in maintaining his good standing as well is being careful not to adversely impact my credit.