Being an authorized user on a card with 95 percent utilization should hurt your credit score. But it’s important to consider other credit scoring factors pertaining to your own credit history, and whether or not the primary account owner has otherwise been responsible with the card.
Dear Keeping Score,
I recently removed myself as an authorized user from two of the credit cards where my wife is the primary cardholder. I noticed that my score went down. How would this be possible as those two cards have a 95 percent utilization on them? Shouldn’t my score go up even though the cards get removed from my line of credit but still they were already 95 percent used? – Priyam
That would make sense, wouldn’t it? Credit scoring is a complex matter that doesn’t always seem to make sense, at least on the surface. So, let’s dig a little deeper.
You have a valid point that if the cards were at 95 percent utilization your score probably should have suffered from being associated with them. But a whole lot depends on what else is on your credit report. If you have cards of your own with more reasonable – or even far, far less – utilization, then what you need to know is that the utilization rate is calculated a couple of different ways.
Credit utilization’s impact is not the same for everyone
It’s calculated by each card, yes, but far more important is the overall total. This amount counts for more in the credit scoring algorithm. To illustrate: Let’s say you have 10 cards, each with a $1,000 limit, and a $500 balance on one. That gives you 50 percent utilization on one card (not great) but only a 5 percent utilization overall (super)!
If your own credit profile had a lower utilization, then the combination of your wife’s and yours may have brought your percentage well below the 95 percent range. This may have resulted in less of a negative overall effect than you thought.
The second thing I want you to consider is that there may be more than credit utilization at play here. There are five components that make up your FICO score and while important, credit utilization only accounts for 30 percent of your tally. That leaves the other 70 percent!
More important than utilization is payment history; 35 percent of your score comes from your payment history. While your wife may have been maxing out her cards, she may have been paying on time and as agreed. If this was the case, then just netting out these two factors you may have lost some points when you factor in both payment history and utilization.
How being an authorized user affects your credit score
I am going to assume that you were an authorized user because you were trying to build up your credit profile. It may have been that you had a thin file (few accounts) or were recovering from some negative credit issues.
Either way, your wife’s info, which may have been net positive overall, was added to your account and as a result, your score increased. Once you took away the extra net positive information, you were left with either less data overall or less positive data to offset any negative entries. Ergo: your score took a dive!
The other factors that may have come into play are how long you have had credit on your own (15 percent of your score), your credit mix (10 percent) and if you had opened any new accounts recently (10 percent), versus what your credit report looked like with her accounts included. When everything is taken into account, your action may have had a net negative effect.
How to rebuild your score
I would be a poor advisor indeed if I didn’t offer you some advice to build up your score. You have two choices. Do nothing or do something.
- Doing nothing really means doing nothing new. It means just paying all your statements on time and as agreed, using credit wisely and often and not opening new accounts unless you need them. If you do this, your score will improve as the positive data accumulates on your credit file.
- Doing something might include adding different types of credit to your mix. Perhaps consider an installment loan for a furniture purchase, an auto loan or some retail store card accounts. Be sure to monitor your charging so you keep your own utilization less than 25 percent. Also, if you only have one or two credit cards, consider applying for another one.
You might also try to spread your monthly charges over more than one card to keep your individual card utilization as low as possible. While adding new accounts will cause a short-term dip in your score, in a few months the extra positive data reporting from the new account will increase your overall score.
Lastly, I suggest you encourage your wife to take steps to lower her balances so that her utilization is at a more manageable rate. I don’t recommend much more than about 25 percent utilization ever, and my very favorite rate is in the single digits. I understand that this is not always possible, at least in the short term. But working toward that end is a worthy goal to strive for and one she may thank you for later.
For now, be patient and monitor your score regularly.
Remember to keep track of your score!