Kim came to our office and shared this along with other interesting information about credit. There is so much we all don’t know and need to know as consumers……Joan Parcewski, Realtor, Woods Real Estate firstname.lastname@example.org
An “authorized user”, (AU) in the credit world, was originally established, back in the day when there was 1 income families. It ensured that housewives were able to attain credit cards as an authorized user on there husband’s account. After all, the credit cards companies quickly understood that they wanted the “keeper of the finances” to definitely have access to credit even though they could not meet the income requirements. The AU account was the perfect answer.
An AU is authorized to make charges on the account but not legally responsible to pay back the debt.
On the credit reporting side, the AU’s credit report includes all such cards. So if the payment history and debt ratio of the sponsoring person’s card is good, the AU’s credit scores benefit. And the opposite is also true.
These accounts, over time, have expanded their reach to more than just married couples. They include children, and other family members and really depends on the comfort level of the sponsor as to who they trust to use the card responsibly.
Yet there is a loop hole. You see, the AU does not need to have possession of the card for the positive credit history to show up on their report. Therefore, I usually suggest to parents, if they have good credit cards, they can help their children establish credit simply by ordering an AU card for them. Once the parent receives the card simply:
- call the 800# and authorize the card
- then go out and buy a tank of gas with it
- then take it home and destroy it (or keep it tucked away someplace)
The parent’s good credit history on that account will then be reflected on their child’s credit report and assist them to establish a good credit history.
I’m sure some of you are seeing how this can also be used in a somewhat dishonest manner for strangers to help others establish a good credit card on their reports and assist them in increasing their credit scores. As a matter of fact, there is a “cottage industry”, that has established itself, where individuals, with a credit card with longevity and good history, are charging upwards of $1,000 to include complete strangers as AU’s on these accounts to deceptively help them build their credit scores.
As a way to combat this misuse of an “authorized users” account, FICO has developed a new scoring system that has the ability to decipher these deceptive accounts. The credit industry is also more closely scrutinizing all authorized user accounts to ensure proper use.
As most good credit programs, there will be those who try and deviously take advantage of the system. My only hope is that the credit industry can respond properly and not throw the good apples out with the bad.
KNOWLEDGE IS POWER!
As Always…….I’m Here to Help!
Have a great week! Kim
Your “Best Interest” is Our Goal!
Kim Carpentier Valley Credit Repair & Credit Counseling