Authorized User vs. Joint Charge card: What's the Better Way to Build Credit? – Credit Sesame

The improve your credit rating, the simpler it is to obtain approved for charge cards, auto loans, mortgages along with other types of credit. A higher score does mean you'll typically pay less in interest on what you borrow when compared with someone whose score reaches the low end from the scale.

Before you'll have a good credit rating, however, you need to have a good credit history. (If you do not know your number, get your free credit rating on Credit Sesame.) If you are starting directly from scratch or you're working on erasing past credit mistakes, there are two relatively easy methods for getting the score you would like. You may either get a joint charge card or ask anyone to allow you to be a certified user on their own charge card.

At first glance, they might appear to be the same task but there are several important differences between the two.

What does it mean to be a certified user?

An authorized user is someone who has charging privileges on someone else's credit card account. Most credit card issuers allow cardholders to add authorized users so long as their account remains open and in good standing. For instance, a parent could add her college-aged child to her account, or perhaps a husband could add his wife to his account. The charge card issuer does not look into the authorized user's credit.

When you're a certified user, you can make purchases with the card but they're not accountable for paying the bill. The primary account holder is likely for all charges, regardless of who used their card to make them.

So how does being an authorized user affect your credit? It's pretty simple. Whenever a friend, family member or significant other adds you to their account, it effectively transplants the payment history for your account onto your credit report. Once it turns up in your report, the information for your account is factored into your credit rating calculation.

If the primary cardholder has a solid history of paying promptly, which will work in your favor. For People's credit reports, payment history makes up 35% of the calculation. FICO scores also factor in the age of the accounts on your credit report so if the person who's granting you authorized user status has had the take into account several years, that can also help.

Building credit having a joint credit card

A joint charge card operates on exactly the same premise but it is not exactly the same thing. Whenever you complete some pot credit card application, you and the person who's completing the application along with you are susceptible to a credit check.

Next and most importantly, when you share a credit card with someone jointly, you're both on the hook for the balance, regardless of who actually spent the money.

So so how exactly does some pot credit card build credit? Whenever you apply for a card and open some pot account, it shows up on your credit report. The card's balance and payments are reported to the credit agencies on behalf of you and your joint cardholder. Paying promptly can benefit both your scores. Late payments target your product.

It's smart to keep your balance on a joint credit card low if you're centered on improving your credit rating. Thirty percent of your FICO credit rating is based on the quantity of debt you owe versus your general borrowing limit. This is called your credit utilization ratio. Generally, lenders prefer to see this ratio at 30% or less which means you should avoid maxing the card out.

How to get a joint credit card

If you're wondering how to spread out a joint charge card account, it's a pretty straightforward process. You find a card that you simply both like. Both of you complete the application, the credit card company checks both credit files, and you're either approved or denied.

The most difficult part is finding a card that will work with both of you. For instance, let's say you're happily married and you have a 620 FICO score, which may place you in the “poor” category. Your partner, who has a 760 FICO score, has decided to open a joint charge card account to try and improve your credit history.

With a score that top, she or he will qualify for almost any charge card out there. Many cards offer excellent benefits, but also come with an annual fee. If one person is not comfortable make payment on fee, both people might have to settle for another card. Also, reward programs differ widely, so you will need to come to a contract with that, too.

Tip: If you're looking for the very best joint credit card, visit Credit Sesame's credit card marketplace to check offers from top banks.

Are there downsides to becoming an authorized user or using a joint credit card?

While becoming an authorized user or opening some pot credit card account can benefit your credit score, there are several potential pitfalls to take into consideration.

First, for instance, your credit score can suffer when the primary cardholder doesn't keep up with the payments or runs up an enormous balance.

The same applies to joint cardholders. Worse, you've equal liability for that debt. When the relationship goes south and the body else decides to not pay, the charge card company may come after you for what's owed. If you don't repay, the account could be delivered to collections or you might be sued.

[Related: Credit Remedies You should know About Following a Divorce]

Before you sign up for that joint account or ask someone to cause you to an authorized user, be familiar with the danger you are taking on (or even the risk you're asking that individual to take on). You can end up doing more harm than good to your credit score, or another person's, in the long run.