There are many simple ways to improve your credit if it's damaged, but what if you're starting out with no credit? One of the fastest ways to build your credit can be to become an authorized user on someone else's credit card account.
What Is an Authorized User?
A borrower with an existing credit card can allow you to become an authorized user on their account. An authorized user is someone who has access to all the perks of being a credit card holder, like the positive payment history that comes with the owner’s account and sometimes even their own card they can use.
What you don't really (legally) have is any of the responsibility to make sure the credit card is taken care of – sort of. It's a good idea to have a set of ground rules with the primary cardholder going into the process.
Typically, people who become authorized users do so on their parent’s, spouse’s, or domestic partner’s credit card, but there's no rule that says you have to be related to the person whose account you're on. If you have a friend willing to extend you their good credit, it could be well worth your time.
Depending on how the account is handled, being an authorized user on someone else's credit card can give you a little boost in credit score, or provide you with an excellent score to start with if you don't already have credit of your own.
It’s the account holder’s responsibility to make the payments on time, so it’s in your best interest to not run up the card with charges that neither of you can pay for. Missed or late payments impact both of your credit scores, along with the on-time payments and the balance.
If you go in with little to no credit, and the account holder has a good credit score and payment history, you should see a jump in your credit score in around six months of becoming an authorized user. If you already have credit, but it's not so hot, it may take a little longer to build on, or it may improve more slowly.
Becoming an Authorized User
To become an authorized user on someone else's credit card, the account holder has to contact their credit card company and request one to be added. They need to provide their credit card company with your information, including your name, address, birthdate, and Social Security number. Once you're added to the account you may or may not get your own card, depending on how the credit provider operates.
Once you're on the account, your credit reports list the new account, and all its payment history and credit building potential are yours. However, it's important that you and the person that's helping you out have an understanding about how you're using and paying for the credit, if you're allowed to at all.
Mismanaging someone else's credit can put a huge strain on even the most solid relationship. On the other hand, if you’re ever in a bind, having that backup credit card can be a lifesaver.
Other Ways to Build Credit Quickly
When you're starting out with a thin credit file, one of the best ways to build credit is to take on credit responsibly and make all your payments on time. If an authorized user situation isn't the right fit for you, you could opt for a secured credit card instead.
A secured credit card is one in which you make an initial deposit, which usually becomes your credit limit. Say you open a secured credit card using $500. This is now your spending limit. Depositing an initial amount into the account reduces the risk to the credit card issuer, and if you don't make your payments they can use the money to cover the charges.
If you do use the card responsibly and make all your payments on time and in full, you eventually earn back your deposit, and may improve your credit enough to qualify for an unsecured credit card that you don't have to put money down on.
If you're not comfortable going this route, credit builder loans from banks, credit unions, and online lenders may also be an option, but they typically require an initial deposit as well.
Improving Your Credit With an Auto Loan
If you need a vehicle and are a no credit borrower, or have a low credit score due to lack of credit history, an auto loan isn't out of the question. You may just need the right type of lender. Subprime lenders that are signed up with special finance dealerships can get people into a car loan even if your credit isn't the greatest.
These lenders know the difference between bad credit from mismanagement and a low credit score from lack of use. They use additional factors other than just your credit score and look at your overall financial health to get you the loan you need. To do this they look at your income, employment, and residence stability, your willingness to invest in your loan with a down payment, and more.
The best part about a bad credit auto loan is that this form of installment loan adds to your overall credit, and with a positive payment history lasting years you can build a solid foundation for future credit needs.
Ready to Grow Your Credit and Get a Car?
If you're in the position to need a car, but don't quite have the credit for a traditional auto lending route, we want to assist you in finding the loan you're looking for. Here at Auto Credit Express, we have cultivated a nationwide network of special finance dealers that are ready to work with unique credit situations.
Let us match you to a dealership in your area that has the proper lenders Just fill out our free, fast car loan request form to get started on your way toward better credit.