Credit Issues by Jeff Mandel and Marlin Brandt
RISMEDIA, March 3, 2010—For years, most credit card companies have allowed a credit card holder (owner) to provide extra card privileges to family members. This is called an “Authorized User” in the credit card industry.
On the surface, this practice seems easy and sensible. I hold a major credit card and decided to let my 18-year-old daughter use a card while she is away at college. I call the service department of my credit card provider and make the request. Typically, several days later, a credit card with her name on it arrives, ready to use with my credit line.
Risks for Credit Card Holders
Credit Limits – Authorized Users may overspend and even “max out” your credit card. Some credit providers can place limits on how much they can charge.
Credit Scores – When an Authorized User exceeds your credit limit by more than 30%, they may begin to negatively impact your credit report scores.
Security – There are no guarantees that the Authorized User will protect your card information from potential I.D. or card theft. Make sure Authorized Users understand how to protect your card during purchases in stores and online.
Pros & Cons for Authorized Users
Credit History – Since 2008, Fair Issac Corp. and the three major credit bureaus—Experian, TransUnion and Equifax—began increasing the frequency of issuing credit reports and scores associated with Authorized Users, says Elena Mojica, training director at the ApprovalGUARD Service.
One example involved a young adult who had been given Authorized User access to five credit cards by a family member. The cards were paid on time each month by the owning card holder (parent). For the Authorized User, these cards represented the only credit on their report and provided them with a score just under 800.
In most cases, credit scores can range from 350 to 850. Anything over 760 is typically considered preferred by most credit providers and banks.
Credit Impact – The good news is that as long as the owning credit card holder pays their credit “on time” and manages the credit lines properly, the Authorized User can, in many cases, establish a good credit history and scores. However, it can work the other way, too.
If the owning card holder does not pay their bills on time or mismanages the credit lines, then the bad credit rating may carry to the Authorized User. The worst thing about this situation is that the Authorized User often has little control on correcting the problem. In one example, a person had their own credit cards and one Authorized User card. The Authorized User card became 30 days delinquent. Within days, she received notice that her personal major credit card interest rate, which was always paid on time, would be increased from 9.9% to 23.99%, due to the poor payment history associated with the Authorized User credit card.
Collections – A new twist on the increased reporting and usage of Authorized User accounts by some credit providers appears to be associated with creditors seeking out alternative options for collection of the mounting bad debt brought about by our current economy. Any attorney will tell you that an Authorized User never signed a contract with the credit card company and cannot be legally held responsible for the debt.
Nevertheless, credit bureaus continue reporting the payment history of the principal account holder on the credit reports of Authorized Users and creditors are calling Authorized Users in an effort to collect late payments.
Used properly, the Authorized User credit card is a convenient option for certain situations. However, most credit experts would agree that when building new credit or to protect current credit, this is one option you should avoid.
Jeff Mandel is president and Marlin Brandt is COO of ApprovalGUARD.
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