The short answer to this question is no; you can no longer build credit history as an authorized user. But don’t stop reading now! This guide will explain the steps you can take to build credit.
Building credit can be a frustrating prospect. In order to get credit you have to have credit; but in order to have credit you have to get credit first. This is especially true during tough economic times when credit card companies and banks are being much more particular about who they give credit to.
Of course, in order to purchase a home or a car requires you to have some sort of credit unless you have a very large down payment for your purchase. So you need to figure out a way to establish your credit.
Traditional Methods of Establishing Credit
There are actually several ways that you can establish your credit. One way is for you to get a department store credit card, which are a bit easier to get approval for. Department stores report to all of the credit scoring agencies so as long as you are making your payments on time and keeping your balance low, a department store credit card will help you to establish good credit. It is important to realize, however, that while this will be a positive on your report it does not hold as much weight as a major credit card.
Another way for you to establish credit is through a secured card. Secured cards are cards that require you to deposit money that equals your balance total. It is very important that you read all of the fine print for a secured card as many companies charge very high interest rates on purchases (and this is your own money you are spending) and others require you pay monthly maintenance fees and annual membership fees. Be aware of any and all charges before you sign up for one of these cards.
Getting a small loan and paying it off is another way for you to establish some credit history. There are many companies that are willing to help you establish your credit as long as you have an established job (typically a work history of at least six months) and your debt to owe ratio is not too high. These loans typically have a higher interest rate than more traditional loans, but they hold a higher weight in determining your credit score than a department store card.
You should also consider opening a bank account, both a savings and a checking account. If you apply for a credit card through your bank, they will consider what kind of standing your bank accounts are in when considering you for credit. If you have an established account and you don’t overdraw on your account, then you have a much better chance of getting a credit card. Many credit card companies will run a bank account check to see if you keep your bank account in good standing.
There are also credit card companies who help people with bad credit or no credit to establish their credit once again. These cards typically require you to pay fees to be accepted (this helps negate their risk for loss if you default on your card) and have either monthly or annual fees (or sometimes both). You should only consider these types of cards when you have no other option, as there are quite a few fees involved in getting one of them. The upside here is that you will be establishing credit and many will reduce and eventually eliminate fees for accounts that are kept in good standing.
What About Becoming an Authorized User?
No doubt you have heard that if you become an authorized user on an account in good standing then that will reflect well on your credit as well. Unfortunately, because of some abuses by some debt settlement companies, this is no longer weighted on your credit report. Being an authorized user will no longer negatively or positively affect your credit. However, there are other ways that you can take advantage of someone else’s good credit.
One way is to become a joint person on an established account. This is different than becoming an authorized user. As a joint account, you are responsible for the payment of the credit card if the primary user does not pay the bill. As an authorized user you are not responsible for the payment of the credit card, you are just allowed to use it. (Many companies have authorized users for company cards, for example.)
Another way to take advantage of someone else’s good credit is by getting them to cosign your credit card application. By doing this, the person who cosigns for you is telling the credit card company that they will assume your debt if something happens and you cannot pay. As a cosigner, the car will appear on their account as well, however they will not have the authorization to use the account or cancel it if they desire to do so.
The Risks of Joint and Cosigned Credit Cards
There is considerable credit risk to both you and to the person you have a joint account with. The reason for this is that if either you or the person you have a joint account with uses the car excessively, you may find that the monthly payments will become excessively high. In addition, even if you are not using the card, if the person you have the joint account with decides to bail on the payments or go over the card limit, misses a payment, etc. then this will negatively influence your credit. If you have a joint account with your spouse and you are separated, divorced or they die, then you become responsible for the debt all on your own.
A cosigner is at risk from you if you should default on your credit card, abuse the card or die, and then the cosigner is responsible for the debt. What’s more, while the card is in use, the card will be reported on your cosigner’s credit as well as your own. It is very important that you not be cavalier about your credit card, especially if you have a cosigner or a joint account.
Where to Find the Right Credit Card for Your Situation
Because there are so many different types of credit cards available, you will want to narrow down your choices by using our credit card chaser tool. What our tool allows you to do is to determine what you want from your credit card, what kind of interest rates that you want, how much you are willing to pay in annual fees (or if you are willing to) and so on.
The free credit card comparison tool will find the best credit card offers that meet the requirements that you establish and present them to you. If none meet your minimum requirements, we will show you the cards that comes the closest to your expectations. You decide whether or not you want to apply, there is no obligation on your part; all you have to do is look at the offers and accept one or decline. It is up to you.
Choosing the right credit card can have a positive effect on the future of your credit worthiness. Using our chaser tool takes the guesswork out of finding the right card and makes it possible for you to make a clear decision about your credit card. Why not try our chaser tool to find the best credit card today, you have nothing to lose!
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