I am sure you are aware of authorized user accounts. But for most people, their knowledge of this subject does not extend beyond the term. Let us start from the top going down step by step to make sure you understand in detail about this issue.
So what are authorized user accounts? You probably are a credit account holder, which means you likely have a credit card. This account is registered under your name and all your other details are attached to it. If you have a family, you may feel the need to give your child or maybe your sibling some financial freedom. Therefore, you will request your credit grantor to allow this person access to funds in your account. You will have to provide their details, and they will be provided with a credit card under that account. This child or sibling of yours then becomes an authorized user of your account. Your account will then become an authorized user account.
Liberties of authorized users to an account
The authorized user that you have granted access to your account will have the following privileges:
• They can use the credit card provided to purchase goods and services.
• They can withdraw funds from the account.
• They can add funds to the account if they wish to do so.
Despite you granting someone else access to your account, the account will solely remain yours, which is the primary differentiation between a joint account and authorized user accounts. Moreover, neither you or the authorized person will need the others approval to access the account as it is the case in joint accounts.
Legally, you, the primary account user, are responsible for any transactions made through the account, hence retaining the power to add or deduct a secondary user from your authorized user account at will. Also, any debts and overdrafts will be directed to you, even if the secondary account user is responsible for them. So, you are the one who will be sued by your credit grantor if anything goes wrong with your account.
The role of your credit grantor
Your credit grantor is simply your bank. What role do they play in authorized user accounts? Your credit grantor is supposed to add and provide your secondary account user with a credit card to access the authorized user account. Some credit grantors charge some amount to provide this services, while some do it for free.
Moreover, a credit grantor is supposed to set the limit for the number of secondary users an account should have, therefore, making their job of keeping track of your account easier and more accurate. You will regularly receive a bank statement of your account activity. This will distinctively indicate your activity, that of your secondary account user and a total.
Authorized user tradelines
When you add a secondary user to your account, you add someone new to the credit circle. Your credit grantor is required to submit the credit regulatory authority with the details of the secondary account user that you just added. The secondary account user will be regarded as an independent account owner by the credit regulatory body. Their new credit activity will start being monitored through the authorized user accounts. This way, an authorized user tradeline is established.
The plus side of AU accounts
Authorized user accounts have recently become very popular among young people. Most young people are interested in becoming authorized users of their parent's accounts. This is because it may help them build their credit score. Therefore, they will be in a better position to get loans from financial institutions when the right time comes. This is popularly known as piggybacking. Piggybacking is not only attractive to young people, but also to those individuals with a bad credit record. They mostly resort to piggybacking to mend their credit records to at least attractive levels. This helps these individuals be able to access loans once again.
This means that if you have a bad credit record, you can piggyback on an account with lots of activity, and you will start rebuilding your credit score sooner than you think.
The downside of piggybacking
Piggybacking seems an easier shortcut for anyone to make it through the credit market. Sure, it is an easy way in. But this will only be useful to you if you are careful on to which accounts you piggyback. You may even end up ruining your credit score even further.
As a piggybacker, you are as good as your primary account holder, and also as bad as them. Let us say you piggyback on someone's account, and they have a prosperous credit record. Your credit record will also prosper. Soon, you will be eligible for big loans, and this will put you in a better life position.
If you, unfortunately, happen to piggyback on a wrong account, then you are ruined. Your credit score will be ruined. As the primary credit account holder's record falls, so will yours. You may have had a good score previously, but this will ruin it all. This is why you have to be very careful as you piggyback on someone else's account.
How to improve your credit score
Keeping a good credit score is a headache for most people. What many people do not know is that it is very simple. It all revolves with how you handle your account and treat your debts. Here are some tips.
• Always keep your account with maximum activity, that is money in and money out. You should not only be adding money or removing money from your account. You should do the most of both. This will show the credit regulatory body that you have some cash in circulation.
• Try to pay your creditors early. The earlier you fix your debt, the better it will be for you. If you have a habit of paying first, it will prove that you are an honest debtor and your credit score will increase.