Why did my credit score drop when I was added as an authorized user?

The Unexpected Credit Score Dip: When Authorized User Status Backfires

Adding an authorized user to your credit card account is often touted as a way to boost credit scores, especially for younger individuals building their credit history. However, the reality isn’t always so straightforward. In some cases, adding an authorized user can actually lower your credit score, a surprising outcome that leaves many scratching their heads. So, why does this happen?

The crux of the issue lies in the shared responsibility inherent in authorized user accounts. While you, the primary account holder, aren’t directly liable for the authorized user’s spending habits, their actions directly impact the credit account’s performance. This performance, in turn, is a key factor in calculating your credit score. Here’s a breakdown of how this can lead to a score decrease:

1. Account Age and Utilization: Your credit score benefits from a mix of long-standing accounts and responsible credit utilization. Adding an authorized user to a relatively new account can sometimes negatively affect the average age of your credit accounts. This is because the credit bureau’s calculation considers the age of all your accounts, and adding a new, younger account to the mix can temporarily lower this average. Similarly, if the authorized user significantly increases the credit utilization (the amount of credit used compared to the total available credit), this impacts the entire account’s utilization ratio, potentially harming your score. Even if you maintain a low utilization rate on your own cards, the high utilization of the shared account will still negatively reflect on your score.

2. Negative Account Activity: This is perhaps the most significant reason for a credit score drop. If the authorized user makes late payments, exceeds their credit limit, or defaults on the account, this negative activity is reported to the credit bureaus and attached to the account. Even though you may have a spotless payment history on your other accounts, the blemish on the shared account will invariably impact your score, especially if it’s a major delinquency. The credit bureaus don’t always differentiate between the primary and authorized user in these instances.

3. Account Deletion: While less common, the primary account holder might choose to remove the authorized user. This removal may temporarily show as a closed account in your credit report. While closing accounts isn’t always detrimental, it can slightly impact your score depending on the overall age and diversity of your credit profile.

Mitigating the Risk:

To avoid a credit score dip when adding an authorized user, consider these precautions:

• Choose Responsible Individuals: Only add authorized users who have demonstrated responsible credit behavior. Discuss expectations regarding timely payments and responsible spending before adding them.
• Monitor the Account Closely: Regularly review the account statements to ensure timely payments and that utilization remains low.
• Consider the Account Age: Adding an authorized user to an older, well-established account minimizes the negative impact on average account age.
• Limit the Number of Authorized Users: Too many authorized users can complicate account management and increase the risk of negative activity.

In conclusion, while adding an authorized user can be beneficial, it’s crucial to understand the potential downsides. Careful consideration and proactive account management are essential to prevent an unexpected and potentially damaging dip in your credit score. The benefits of authorized user status should always be weighed against these potential risks.