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Being authorized user on a maxed-out card: Does it help or hurt score?

It's doing more harm than good to your rating; time to start building credit on your own

By  |  Published: July 22, 2017

The Credit Guy
Columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.
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Question

Dear Credit Guy
I am a recent college graduate who started a full-time job a few months ago. I am looking at my credit rating, and one of the detractors is the card my parents added me to as an authorized user. This card is close to its limit. I have been on that card for a few years and it makes up the majority of my credit history.

If I were to be removed from that card, would that improve my credit rating? Would the removal hurt my credit history rating? – Matthew

Answer

Dear Matthew,
Your parents did what many parents do in today’s world of credit. By adding you as an authorized user to one of their accounts, they allowed you to start building a credit file for yourself, which is a good thing.

What is not so good is when the account you are associated with has problems like high credit utilization, which is what you are experiencing now.

Effects of removing yourself as authorized user
I believe you should probably remove yourself from the account now, but there are a couple of things you need to keep in mind.

  • Removing yourself from this card will likely have both a positive and a negative effect on your credit rating.
  • Your credit history is important and, as you point out, you will lose much of that history if you take yourself off of this card.
  • But credit utilization – the amount you have borrowed compared to your credit limit – is another important piece of the credit rating pie. 
  • Considering both elements, being close to the card limit is probably hurting you more than having the history is helping you.

I can’t say for sure if those two factors would cancel each other out, but I do think it would be in your best interest to go ahead and remove yourself now.

At some point in time you are probably going to need to access some credit for a major purchase. When that time comes, you will want your credit report to be in its best possible shape, and that probably means that this account should be removed sooner rather than later.

Just so you know, you can remove yourself from the card with a phone call to the creditor if you would rather not involve your parents.

Building credit on your own
I would recommend that you hold off on major purchases for a while and work on building your credit up on your own in order to put yourself in a better position to qualify for the best terms.

  • For now, see if you can qualify for a credit card on your own. You may not get the best rates right now, but if you use the card responsibly that really won’t matter.
  • Use your card for regular purchases, such as gas or groceries, and never charge more than you can afford to pay at time of the purchase.
  • Your goal will be to never carry a balance on your card and always pay on time, every time. On-time payment is one of the most important pieces of that credit rating pie.

 

Video: 4 ways students can build credit

In fact, you can give your score a boost by making multiple payments throughout the month. To make this work, set up your card for online bill payments and make payments each time you use the card for the amount you charged.

This demonstrates a responsible use of credit and your score should start to reflect that in a few short months. It also means that you will stay well below that credit utilization rate and that you will never find yourself in credit card debt.

In addition, even if your rate is not the best, you will be paying your balance in full each month and will not be paying interest on your purchases.

Take care of your credit!

See related: How to remove an authorized user from a credit card account5 questions every authorized user should ask

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Updated: 08-18-2017

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