If a card has a high credit utilization, adding somebody as an authorized user to that account can hurt their credit rather than improve it.
Dear Keeping Score,
I have two zero-interest balance transfer cards. One has a balance of $6,500 and an $8,000 limit, and the other has a $6,000 balance and an $11,000 limit. I added my wife to the former card as an authorized user when I opened the card, but I didn’t transfer the balance until June. She has young credit and a $1,000 credit card that she pays every month to zero. This card that I authorized for her never came and she never activated it or used it.
Last week, her credit score dropped by about 100 points. She was very angry about this and demanded that she be removed as an authorized user, and I complied. A week later her credit score went down again. What I want to know is if there is a way that I can dispute this change with the credit companies. Is there some way to say that she was not an authorized user? Is there some way to strike this from her record? -Chris
Dear Chris,Your wife has excellent grounds for a dispute. Unfortunately, the dispute is with you!
The card issuer did what you asked and the credit scorer accurately scored your wife’s authorized account. The fact that your wife never received or activated the card does not mean it didn’t show up on her credit report, as you both have now seen. While you could complain to the credit bureaus via the 100-word statement you are allowed on your credit reports, I think this would do more harm than good. These statements too often tend to highlight a problem, rather than fix anything. Removing factual information is generally not possible.
Each credit reporting agency reports authorized users differently. For example, Experian will only report positive data on an authorized user credit file. Equifax will report both positive and negative data on an authorized user’s credit report and keep it there as long as the authorized user is on the card. The speed with which the trade line is taken off your wife’s account will depend on how quickly the lender updates your data at the credit bureaus. It could be monthly or, for some smaller lenders, longer.
You were on the right track originally. Adding a person as an authorized user to an existing positive account is a good way to help those with a thin credit file. This is often done by parents to help their children establish some credit in their own names. However, as your situation proves, you must be very careful with this approach if the idea is to help someone with their credit. By adding a loved one to an account with high utilization, you risk hurting their score instead of boosting it. And then, by removing her from the account, her score dropped further because she lost that additional new line of credit, which hurt her credit mix, which is another credit scoring factor.
In your case, the card you added to your wife’s credit file had an 81 percent utilization rate, and that is way too high. If the balance on your card was less than 50 percent of its maximum or the card’s limit was higher, you’d have been a hero. But as soon as you transferred the balance to your shared card, the damage was done to her credit (and likely to your own, as I mentioned earlier).
On the brighter side, if a prospective lender were to check your wife’s credit score using the VantageScore, they’ll find that no damage was done. Unlike FICO’s model, VantageScore 3.0 does not carry over any negative information from an account owner to an authorized user. So, maybe you can try to blame this whole mess up on FICO?
My suggestion is that you both wait this out. Hopefully, you aren’t planning on making any sizable purchases in the next month or two that will require a loan. Your own score has likely taken a hit due to the high utilization on your cards – so, I would also recommend to reduce your utilization as much as possible. Zero percent offers are great, but as I’ve said before, you are trading credit score points for dollars.
Tell your wife she should continue to use her own card responsibly, and she will see her score go back up in time. I would also suggest she keep her usage on the card low each month, even though she pays it off every time. I know it is hard to wait, but that’s where you are right now. You inadvertently messed up, but the damage is temporary. Once her scores improve, she can either ask for a credit limit increase on her existing card or apply for a new card to improve her credit mix. Showing lenders she can handle multiple lines of credit responsibly can boost her score.
Remember to keep track of your score!