Get Your Own! How being an ‘authorized user’ on a credit account can put your own credit score in danger?
When I was in college, I tried to get my first mobile phone. I was quickly denied and told I did not have any credit and would need to have a co-signer. A co-signer? Really?
I had a job so I knew I could make the monthly payments. I was confused because I had never had any financial troubles in my name, ever. Well, that was because there wasn’t anything financially connected to my name, expect for one checking account, with a low balance I might add. I was frustrated and in the dark.
I knew I wasn’t going to get a co-signer.
I am the youngest of four and let’s just say, my parents had enough experience with unsuccessful co-signing. I wasn’t about to ask or put them in a position to have to punish me for my predecessors called siblings. I asked the phone company what I could do myself to help establish credit and build it. Then, I would come back to apply again for the cell phone. They suggested I ‘piggyback’ on someone’s credit card. This is when you become an authorized user on someone’s card. They would have to trust you to be responsible with having access to use their credit account and you in turn would have to trust that they paid their debt on time,consistently and had good credit themselves. In turn, you would benefit from their good credit standing.
Sounds ideal, right? Well, my mother was a firm believer in ‘you don’t spend what you don’t have,’ even to build credit. She had got into some credit card troubles years before I came into the world and she has never had another credit card since. I didn’t want her to have to watch her credit or use some type of credit monitoring services either so, I knew that was never going to be an option.
What to do next?
My cousin and best friend worked at a department store and she said for me to get a card through the store, make a few purchases, pay it off quickly, etc. I was still denied. I had nothing to attest for my credit. Since she had a card, she suggested I ‘piggyback’ on hers and then I could get one for myself after I had benefited from her credit. Because of my rational thinking, I decided not to. She was 20 years old and loved to buy expensive handbags while also paying for school, a car, and a cell phone of her own. She didn’t earn much at her part time job and had taken out a personal loan. I knew her own credit was going to slip through the cracks and she was going to end up in financial hell. I was not about to ‘piggyback’ on that and ruin my credit before I even had any! Needless to say, I gave up my new mobile phone dream. I decided to become an authorized user on my mother’s cell phone plan and then with that, I opened a credit line at a small boutique, where I hardly purchased more than one thing a month and paid it off immediately. I did this for about a year, patiently and that began my credit building with a major credit card. Ten years later and I have almost near perfect credit! Not everyone is as rational at that age or any age when it comes to finances. Here are some reasons to reconsider becoming an authorized user to build or rebuild your credit.
The general purpose of ‘piggybacking’ is for someone with little or no credit to benefit from a card holder, assuming they have good credit and are responsible with their own credit management. The authorized user would not have access to the account nor were they responsible for it. They only benefited from the good credit of the card holder. Doesn’t sound fair, right? This idea only blossomed in the beginning until it became a trend and there was a surge in authorized users. FICO had to re-evaluate a formula in order to keep people from piggybacking solely to build their own credit. They wanted to leave authorized users out of the formula for credit scoring, but could not when they saw over 20 million authorized users were legitimate. Meaning, they had family connections with the card holder. So, after this, FICO decided that authorized users would be held responsible for the account as well by receiving a card of their own. In addition, 30 percent of the authorized users credit score will be based upon the amount owed in comparison to the credit limit, aka credit utilization ration. Now, they not only benefit, they can suffer if they or the account holder abuses the credit. The authorized user’s credit score can also be affected by how many other lines of credit the account holder has open as well.
In short and in my opinion, becoming an authorized user can do more damage than good. Unless you are constantly monitoring your credit reports, you essentially are sharing your credit with the account holder and putting your future at risk. Great if they have impeccable credit, but that is not always the case. It can ruin your credit should they damage their own credit in any form, not just with that particular credit card. You are forever tied to their credit unless you are removed as an authorized user.
Thank goodness I did not go that route when I was in college. I could have been in financial and credit ruin never having done anything! Please consider this when it is suggested to you that ‘piggybacking’ is the best way to get credit. It can be just the opposite and can take many years to undo and rebuild. Take your credit score and history serious and take it and keep it in your own hands!