Authorized Users, Check Your Credit Report!
It came as quite a shock to me to find out that an authorized user on a credit account may have the account activity reported on his or her credit report. So if you are an authorized user on someone else's credit card and they are 30 days or more late, otherwise default on the payments, or even declare bankruptcy, you may find something nasty the next time you review your credit report.
Even though you never signed the credit agreement and are not legally responsible for the debt, becoming an authorized user on an account makes your credit score just as vulnerable as the account holder's. If the account is managed well and the credit line used wisely, the authorized user's credit score may be affected in a positive way.
However, if the account becomes past due the delinquency can also be reported and become a hard to remove negative item on the authorized user's credit report. Some lenders have even been known to report a bankruptcy on the authorized user's credit report! Now that would be tough to explain to potential creditors.
But how is it that lenders have the right to impact authorized users credit scores by reporting the account activity to the credit reporting agencies? We are all aware that they routinely report the account activity of the primary account holder, but when did it become legal for them to report credit activity for the authorized users of accounts? The answer may surprise you.
It's been going on for a lot longer than you may have imagined. That's right, it's not a new thing. Years ago, in a time hardly remembered anymore, women rarely worked outside the home and rarely had their own credit accounts. Well, in 1974 something fabulous called The Equal Credit Opportunity Act (ECOA) was passed and became federal law, ensuring that all consumers are given an equal chance to obtain credit.
One of the goals of the Act was to help married women establish credit histories in their own names. In order to benefit all women, especially the ones who did not work outside the home, the Act provides that a creditor that furnishes information to credit bureaus must report account information for both spouses on joint credit accounts and on accounts where a spouse is an authorized user.
And that's how it began.
Years later, commentary from the Federal Reserve Board gave creditors the option of reporting account information on any authorized user. There you have it. Federal Law gives creditors the absolute right to report all account activity, even bankruptcy, and impact the credit scores of authorized users right along with the account holders.
Not all credit card companies exercise their rights to report on every authorized user. Some companies may only report to credit bureaus when the authorized user is a spouse.
If you are an authorized user on an account it is best that you find out what the credit card company's reporting policy is and then decide whether or not you want to remain on the account. Preventative measures are always in your best interest when protecting your credit file.
It's much easier to prevent negative reporting than to have it removed from your file.