Authorized User Credit Card – What You Need to Know
Understanding Authorized Card User
An authorized card user is a person who is given the legal right and authority by the cardholder to conduct transactions with the card but is not allowed to pay any bills. This normally happens to family members or friends. This is done through a procedure where there is an agreement to sign a ‘Cardholder Agreement’ which includes terms for all the fees levied on the account and outline policies regarding perks of any kind. The terms are supposed to be outlaid accurately by the issuer to avoid any future misunderstandings.
The cardholder agreement also outlines annual percentage rate (APR) paid by the cardholder. This document is issued to the credit card holder. Many financial institutions can allow you to add an authorized user without providing the individual’s social security number (SSN) – a number issued by the government to an individual with a fundamental factor of security purposes of tracking and sometimes is used for taxation. You are only required to give their necessary information such as name, birthday, address and age. It is advisable to weigh the drawbacks and benefits before adding account holder. Remember, you are the one responsible for paying all the bills.
An additional cardholder is almost the same as a normal authorized cardholder, except that they enjoy more benefits. For instance, they get all the benefits of a debit card and they do not get any liability to the account. There are steps to be followed by the primary account holder which are provided by the relevant banks. It differs from one institution to another. Most financial institutions require a cardholder to be at least 18+ of age. There are also advantages and disadvantages of having an additional cardholder. The account holder can choose to add more than one authorized cardholder – there is no limit.
Removing an authorized card user is fairly easy. You only need to make a call to your relevant financial institution and request that the authorized holder be removed. At times you may have more than one user, so you have to be specific on the correct user to be removed from the account. Let the user know that you are removing him to avoid an unpleasant situation.
Credit and Credit Limit
Adding an authorized user helps you build credit score, although this can be negatively affected if the account holder does not pay bills on time. This will make the credit card report late payment to credit bureaus, although some financial institutions do not report it, especially if a local bank or credit union issues the card. It is also disadvantageous if the account has a high utilization rate, which means it will also affect the credit score (credit score is a numerical expression based on a credit report issued from credit bureaus. It’s a three-digit number that shows your worthiness to repay a loan). It’s more advantageous to add your child as an authorized cardholder to teach them responsible credit use and it will earn extra points or cash back too.
Authorized users are reported to the credit bureaus, though they are not legally responsible for paying the bills and the activities associated with the bank. The issuer will report account information monthly to the credit bureau under the authorized username.
Credit utilization ratio is the ratio of your credit card balance to the credit limit. It is the measure of your credit in use. Assuming you have a balance of $40 and your credit limit is $100, then your credit utilization is 40%. You simply divide your credit card balance by your credit limit and then multiply by 100. Higher balances are difficult to afford, and it shows that you have overextended. High utilization will lower your credit ratio, and this alarms your lender that there is an increased chance of you failing to repay.
Ways to Improve Credit
- Being an authorized user on someone’s credit card builds credit history without paying for your charges. As a cardholder, you should ensure that the card issuer reports the authorized user activities to the credit bureaus.
- Sampling all your rent to get credit and adding it to your credit report, especially when it’s paid on time. This will build positive credit history.
- Apply for a soft loan, usually referred to as a credit-builder loan.
- Account balance should be low. Credit utilization ratio, which is the amount you owe the bank with all your available credit also creates a significant effect. Aim to use less than 35% of your credit limit or lower.
There is a maximum amount of credit that lender will extend. This is called credit limit. The limits are determined based on several issues related to the borrower. Factors to be considered are personal income, history of loan repayment (if it is there) and credit rating, among other factors. Higher credit limit affects credit score negatively.
Credit Card Annual Fee
It is a fee charged once a year automatically. The higher the fee, the more benefits from the card. It’s invaluable to note that all cards charge an annual fee. The account holder should make sure that the benefit of the voucher exceeds the cost. It can be charged once a year, or the fee may be divided into monthly charges. In most cases, it is assessed annually on your account anniversary. When a bank decides to raise the annual fee, it is required by the federal law to notify you prior 45 days before it is effective. If the account holder feels uncomfortable with the increased cost, you have the option to opt out any time by terminating your credit card, although doing so could affect negatively your credit score. Always compare your annual fee with other credit cards to ensure that you get the best deal. Before opting out, remember to redeem your rewards to avoid losing them.