How Does Adding an Authorized User Impact Credit Score(s)?

Two of the last three credit cards that I posted about (the Chase Sapphire Preferred and the Chase Marriott Rewards card) offer additional bonuses when adding an authorized user, and I have received a couple of questions regarding this topic.

Banks offer additional bonuses for adding authorized users in order to encourage more spending on their credit cards. Their logic is that the bonus is incentive enough to get the additional card for the authorized user, and two people will likely produce more spending on the card than just one (remember – banks love when you swipe their cards, since they get paid each time that you do!).

In most cases, I recommend taking advantage of the additional bonuses that banks offer for adding authorized users, since they are easy points to earn, but it is important to understand all of the implications in doing so, including the impact to your (and the authorized user’s) credit score.

Before getting into the specific credit score impact, it is important to keep in mind that adding a spouse (or family member) as an authorized user will not preclude your spouse from being eligible to receive that same credit card bonus in conjunction with opening their own application. In other words, adding my wife as an authorized user on my Chase Sapphire Preferred will not prevent her from receiving the current 50,000 points sign-up bonus on the Chase Sapphire Preferred if she, too, decides she wants to apply for the card.

Quick tip: Make sure to keep the illustration below in mind in order to earn maximum points using referral offers and authorized users:

Next, let’s tackle how adding an authorized user impacts the credit of both the primary cardholder, as well as the authorized user.

I’ll breakdown the answer like this:

Impact to the Primary Cardholder –

There is really no immediate impact to your credit, but it is important to keep one thing in mind – you are liable for ANY and ALL charges made by the authorized user on the account.

Since you are the primary cardholder, all charges made by your authorized user will appear on your bill, and thus are your responsible for these charges. If, for some reason, your authorized user does not spend responsibly, then your credit score may suffer if you are not able to pay your bills on time.

Impact to the Authorized User –

An authorized user will benefit since he/she will now have access to your line of credit with the issuing bank. If you remember the credit factors that make up your credit (check it out here if you don’t), then you will see how increasing your available credit can increase your utilization ratio and positively impact your credit.

This is why granting access to the primary cardholder’s good credit is a great way to help build/improve credit for an authorized user!

One thing to keep in mind is that just as an authorized user will take on the good aspects of a primary cardholder’s credit, the authorized user can also take on the negative aspects – like a very high utilization ratio or other derogatory marks.So although an authorized user will gain access a new line of credit, if the primary cardholder is utilizing a staggering 90%, then that new line of credit wont look so good from a credit utilization perspective!

So, only add an authorized user if you have great credit as a primary cardholder!

When Adding an Authorized User DOESN’T Make Sense:

1. Negative marks on the Primary Cardholders credit report.

If the primary cardholder has a high utilization ratio, has missed payments and/or has other derogatory marks on his/her credit report, then these factors would negatively impact the credit score of the authorized user. The negative impacts here would outweigh any authorized user bonus or other advantage that may be sought.

2. You don’t trust the potential authorized user.

Remember, the primary cardholder is liable for ANY and ALL charges made by an authorized user. Therefore, ONLY add those that you can trust to act and spend responsibly (i.e. a family member. don’t go adding your neighbor’s son’s best friend’s uncle!).

 

3. There is a fee associated with adding an authorized user.

In most cases, the benefits of adding an authorized user will not outweigh any sort of authorized user fee. Authorized users generally do not receive all of the card benefits of the primary cardholder, so paying an extra fee wouldn’t make much sense. The one exception that I know of relates to some high annual fee cards (cards with annual fees over $350 like the Platinum American Express, Citi Prestige, and Citi AAdvantage Executive) which have authorized user fees associated with them, but do actually extend benefits to like lounge access or Global Entry reimbursement to the authorized user

4. If the authorized user doesn’t EVER plan to use the card

If an extra bonus is at stake, or if the card has good spending bonus categories, or if you are trying to boost the credit score of an authorized user, then I can see the reason for adding an authorized user. If none of these factors are present and the authorized user never plans to use a card, then it probably doesn’t make much sense to add to the account. If no benefit is received, then is it really worth taking on any possible risk (like theft or other)? In my opinion, no!

My Final Thoughts:

Your credit score is one of the single most important numbers in your life and it is always important to understand any possible impacts to that score. I hope I have been able to illustrate those impacts above, but if you have any additional questions related to authorized users and the overall impact to credit, then feel free to email me any specifics at accountingyourpoints@yahoo.com.

DW