It can be hard to build credit from scratch, especially when you’re young. After my younger sister graduated from college, she had a pretty thin credit file. She had no loans under her name and only one credit card that she’d opened with our credit union a couple of years back but hadn’t used much.
The catch-22 of having a thin credit file is that it can be difficult to qualify for credit cards, loans, and other forms of financing — but you need to open credit accounts to build credit. There are a number of methods for doing this, from opening a secured credit card to taking out a credit builder loan, but one lesser-known method is easier, and cheaper, than the others: getting added as an authorized user to someone else’s credit card.
When you’re added as an authorized user, that person’s credit card activity is often reported to your credit file, which can be very helpful if that person is responsible with their credit card. However, it’s not without risk.
Why I added my sister as an authorized user
I’m a credit card rewards junkie, and I especially love a good travel credit card. A few years ago, I decided to apply for the Chase Sapphire Preferred, one of the best travel credit cards of its class. (I’ve since upgraded to the Chase Sapphire Reserve and can say it’s worth every penny.)
When I went to apply for the credit card, the sign-up bonus offered 50,000 Ultimate Rewards points if I could spend $4,000 in the first 3 months. It’s now offering 60,000 points to new cardholders who spend $4,000 in the first three months, so the current offer is even better. On top of that, the offer included an additional 5,000 points if I added an authorized user who makes a purchase within the first few months. That offer has changed, but you may still come across credit card offers that include bonus points for adding an authorized user — though this is less common than it used to be.
So, my motive for adding my sister was entirely selfish: I wanted those extra 5,000 Ultimate Rewards points. That’s an extra $62.50 in travel rewards, at least! I called up my sister, and she said it was fine if I added her. It was easy to do this in the online application, and her card came in the mail along with mine. She used it once to help me get the bonus points, and then she cut her authorized user card up.
How an authorized user card impacted my sister’s credit
While I added my sister for the points, we soon realized that it was a win-win situation for us both. Because she had a thin credit file, my activity on the Chase Sapphire Preferred had an almost immediate impact on her score — it increased by 20 points. It’s impossible to say if that increase was solely from her being added an authorized user, but it’s pretty clear that it helped.
There are a couple of reasons I could guess at as to why she saw a notable increase in her score. For one, I was putting more than $1,000 in spending on the card per month in order to achieve the sign-up bonus, but I was also paying off my balance in full several times per month. I made sure to keep my debt-to-credit ratio well below 30%. In fact, it usually hovered at 10% or less.
Always making on-time payments, using the card regularly, and keeping your balance-to-credit-limit ratio low is the only way to make sure your activity improves, rather than hurts, the credit score of your authorized user. I was also granted a fairly large credit limit — around $10,000.
I don’t know if my sister was carrying a balance on her credit card at the time, but if she was, adding a large line of credit certainly helped her debt-to-credit ratio, which is an important factor in calculating credit scores.
The risks of adding — and being — an authorized user
“Credit card piggybacking” is not without downsides, on both ends, so you should only do it with someone you’re sure you trust.
The person being added as an authorized user is putting their credit score at risk. If the primary cardholder’s credit card activity is anything but impeccable — for example, if they carry a high balance or miss a payment — the authorized user will likely see a significant drop in their credit score.
On the other hand, the primary cardholder is putting their finances at risk. Any purchases made by the authorized user are ultimately the responsibility of the primary cardholder. If they run up a balance and refuse to pay, that balance falls on you, and if you can’t pay it, your credit score is on the line. Unless you’re ready and willing to pay for any charges the authorized user makes, it’s smart to avoid giving them the card at all.
Playing the authorized user game is risky. However, as my sister and I learned, it can also be rewarding — if played right.