credit & debt

What Being an "Authorized User" Does to Your Credit Score

An adult child's credit score may dip–or even rise–after he or she is removed as an authorized user of a parent's credit card.

Question: Years ago, my parents made me an authorized user on one of their credit cards. I have my own cards now, and they are removing me from their account. Will this affect my credit score?

Answer: It can, but maybe not much if you’re smartly managing your own cards. “You might see a bit of a dip in your score because there’s been a significant change. But if you’ve established a strong credit history otherwise, that score will rebound,” says Rod Griffin, director of public education for credit bureau Experian. If your parents’ card has a high balance relative to its limit or a record of late payments, then being removed as an authorized user could even give your credit score a lift.

One important consideration: The credit line on your parents’ card should no longer factor into your utilization ratio, which is the amount you owe on your cards as a percentage of available credit. FICO includes utilization in its “amounts owed” category, and it makes up 30% of your credit score. The lower the utilization ratio, the better for your score. For example, if your credit limits total $25,000 while you’re an authorized user, your parents’ card has a $500 balance and your own cards have $4,500 in total balances, your overall utilization ratio would be 20%. But if your available credit falls to $10,000 after you’re dropped from your parent’s account, your utilization ratio rises to 45%.

Utilization is calculated for individual cards as well as in the aggregate for all your accounts. Aim to use no more than 20% to 30% of your limit on each card to maintain a healthy score. Those with excellent FICO scores of 800 or higher use an average 7% of their available credit, according to FICO.

After an authorized user is removed from a credit card, the account usually disappears from the user’s credit report, says credit expert John Ulzheimer, formerly of FICO and credit bureau Equifax. If that’s the case, the age of your parents’ account will no longer be a factor in your credit score. Length of credit history counts for 15% of a FICO score, so if your other credit accounts are newer than your parents’ account, your score may drop a bit.

It’s possible that your parents’ card account will remain on your credit report but no longer be updated by the issuer. In that case, the account’s age will still be considered in your credit score (but utilization won’t). If you want to see whether an account still shows up on your report, go to www.annualcreditreport.com, where you can get a free report from each of the major bureaus—Equifax, Experian and TransUnion—every 12 months.

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