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You get spending power when you get added to a credit card, but it’s important to use it wisely. Read on to learn more.
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It’s estimated that 28 million U.S. consumers are considered “credit invisible,” according to Experian. That means they don’t have a credit history. And without one, the credit bureaus cannot establish credit scores for them. That’s a problem, though, because without a credit score, you might struggle to do everything from buy a car to rent a home to get approved for a credit card.
Now, it’s commonly the case that younger adults who have never had any bills in their name are credit invisible and therefore don’t have a credit score. But if you don’t have a credit score, getting a credit card of your own can be tricky to impossible.
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When that’s the case, your next best bet may be to get added an authorized user on somebody else’s credit card. But it’s important to understand exactly what that means.
When you suddenly get spending power
From a credit score perspective, getting added as an authorized user on a credit card can be helpful. That’s because payment activity associated with that account will start to be recorded for your credit record.
So, let’s say your parents have a joint credit card and they add you as an authorized user. Let’s also say they then pay that credit card bill on time and in full every month. That positive activity will go on your credit record to help you not only build a history, but a positive one. And after a while, the credit bureaus should be able to establish a credit score for you.
Of course, the opposite could happen. If you’re added to your parents’ credit card account and they’re consistently late paying that bill, that’s negative activity that will go on your credit record. But ideally, that won’t happen.
Meanwhile, as an authorized user on a credit card, you’ll have the ability to swipe that card wherever it’s accepted. And you’ll be able to charge expenses on that card up to the account’s spending limit. It’s not like you’ll get your own separate spending limit.
Because of this, you’ll need to use that card very carefully. You’ll also need to come to an agreement with the primary cardholder(s) — in this example, your parents — and set some rules.
Your parents might agree that you can charge up to $200 in expenses per month on that card without having to pay them back. Or, they might say that you must pay for every expense you charge.
You’ll need to make sure to adhere to the rules for a couple of reasons. First, if you spend too much, you’ll risk going over your card’s credit limit. Secondly, if you charge too many expenses, your bill might be unpayable. And that could cause damage to your credit score when you’re trying to build one up.
A good solution to consider
Becoming an authorized user on an existing credit card account could be a great way to establish a credit history and get yourself a credit score. Just be careful not to abuse your privileges as a member of that account, though. If you do, you might not only hurt the people who added you to their account, but also, cause yourself similar harm.
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