Secured credit card vs. authorized user: Which is better for establishing credit?

Written by
Richard Barrington
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Are you looking to build credit from scratch? Or perhaps trying to repair credit after some past problems?

Becoming an authorized user on a credit card or getting a secured credit card are two approaches to building or repairing credit. Each approach can overcome the classic obstacle of getting a chance to show you can use credit responsibly when you don’t have a good enough record to get a conventional credit card account.

However, these credit-building techniques are not without their drawbacks. Understanding the pros and cons of being an authorized user or getting a secured credit card can help you decide which is right for you.

What is an authorized user?

An authorized user is someone who is officially allowed to use another person’s credit card account. To become an authorized user, someone with a credit card would have to register you with the card’s issuer as someone with permission to use the account.

As a result of this, the credit account would now appear on your credit record, as well as that of the account’s owner.

Being an authorized user is different from having a joint account. With a joint account, both people must apply. That can make it harder to get the account unless you both have a good credit record.

Also, with a joint account both parties are financially responsible for the account. In contrast, authorized users are not financially responsible for the account – only the account’s owner is. An important exception is if you are married to the account owner and live in a community property state. In those cases, spouses are generally responsible for all of each other’s debts.

What is a secured credit card?

A secured credit card is one that requires you to put down an upfront, refundable deposit. This deposit is used as collateral in case you fail to pay the bills on the account. Otherwise though, payments are not drawn out of that deposit. You are required to make principal and interest payments just like you would be with any other credit card.

Those payments will go towards building your credit record. However, before signing up for a secured credit card you should confirm that the card issuer reports payments to the three major credit bureaus.

Authorized user – pros and cons

Here are some advantages of becoming an authorized user on someone else’s credit card account:

  • You don’t need to have good enough credit to qualify for a credit card account. Effectively, you can piggyback on the other person’s credit record.
  • No upfront deposit is required.
  • Signing on to an account with someone with a good credit history may give you the opportunity to learn good credit habits from that person.

On the other hand, here are some potential drawbacks of the authorized user approach:

  • You need to find someone who will trust you enough to make you an authorized user on their credit card.
  • The person who trusts you to be an authorized user must have good enough credit to qualify for a credit card.
  • Managing payments can be awkward when more than one person is using the account. Although the account’s owner is responsible for payments, any problems will reflect negatively on your credit record as well. You need to have a clear understanding with the account owner about how payments will be handled.
  • Having multiple users can make it hard to keep credit utilization low. Credit utilization is the percentage of the credit limit that is in use, and it’s a factor in calculating credit scores. With more than one user, the combined usage of credit is likely to be higher. You need to work out how to keep the account’s balance at a reasonable level.
  • Both parties’ credit is at risk. The account owner has to trust you, but you also should understand that if the account owner doesn’t handle the account well, it will reflect on your credit record too.
  • Some cards charge an extra fee for authorized users. This kind of fee should be a factor in choosing a card, and you and the account owner should have an understanding going in about who will pay it.
  • Removing an authorized user can be problematical. An authorized user will probably know the account number and other details. Depending on the reasons for removing the authorized user, the account owner may not be comfortable with that.

Note that most of these potential drawbacks are a bigger problem for the person who signed up for the credit card than for the authorized user. That’s why the first item on the above list can be a major obstacle – someone needs to be willing to take these risks on your behalf.

Secured credit card – pros and cons

Here are some advantages of using a secured credit card to build credit:

  • You can get approved without having a great credit history.
  • The account is yours alone. There’s no need to coordinate how to use it with someone else.
  • You aren’t taking the risk of someone else’s mistakes showing up on your credit record.
  • Card issuers often offer a pathway to qualifying for a regular credit card account if you use the secured account responsibly.

On the other hand, secured cards have potential drawbacks:

  • They require that you deposit money up front. Since people often seek credit because their immediate cash flow is limited, tying up some of that cash flow with a deposit may be a problem.
  • Low credit limit. Not all secured cards will give you a credit limit that’s any higher than the deposit you put down. Those who do won’t make it much higher, in an effort to limit the card issuer’s risk.
  • High interest rate. Credit cards often charge customers with poor credit scores high interest rates, and secured cards are no exception.

This list of drawbacks is shorter than the one for authorized users. However, that first drawback – the need to put a deposit on the card – may be prohibitive for some people.

Moving on with credit – the ultimate goal

As you evaluate authorized user status and secured credit cards, keep in mind one ultimate goal: either should be temporary.

If you handle the responsibility well, before long you should be able to move on to an ordinary credit card account. That means you’ll have a credit card that is likely to be more cost-effective and have fewer restrictions.

Even then, remember that maintaining credit is an ongoing responsibility. Keep your debt under control and make your payments on time. That way you should never find yourself back in the position where credit is hard to get.

A good place to start this journey is by shopping carefully for the right credit-building account. Making choices that save you money can make credit easier to handle.

Richard Barrington
Cardratings Contributor

Richard has over 30 years of experience in financial services, including 23 years with the investment management firm Manning & Napier Advisors, Inc., where he led the Marketing Group and served on the firm’s Investment Policy Group and Executive Group. Over the years, Barrington has...Read more

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