Authorized Credit Card User vs Co-Signer
An authorized credit card user is a person who is authorized by the owner of the credit card to be able to use the card. A co-signer is someone who pledges to pay back your loan if you cannot. There are a couple of differences between the two starting with an authorized user does not affect credit. The authorized user can use the card but isn’t responsible to pay it back. This isn’t the same with a co-signer. If the card owner misses the payments, it will hurt the owner’s credit and the co-signers credit. Another difference is nothing will show up on the credit report for the authorized user. If you are a co-signer it will show up on your credit report.
How can someone decide if they should get added as an authorized user or get a co-signer on their credit card?
Before getting a co-signer or an authorized user you should consider your situation. A co-signer involves more trust than an authorized user. Some people may need a co-signer when applying for credit. Whether it is a credit card, car loan, or mortgage you may need a co-signer to get you approved. An authorized user still requires trust because you are allowing someone to use your card, but there is no risk of the authorized user’s credit being affected. Some people use an authorized user for their child so they can have access to their card. It is suggested you put a limit on how much funds the authorized user has access to limit their spending.
How you can build up your credit score if you have no or poor past credit history
If someone came to me asking how they can build their credit and they don’t have any established credit this is what I would tell them. I would tell them to get a secured credit card. You can secure the card to your house, investments, or even cash. With a secured credit card, I have seen people get up to a 10,000 limit, the more money you put down on security the higher your limit can be. This secured card is the same as a normal credit card but you just need a security deposit. After using this card for a couple of months I would suggest they apply for a new card (while keeping the old card) with a balance of over 3,000 minimum. 3,000 because lenders like seeing you can manage higher limits. I would tell them to make the payments every month but also never use more than 50% of their limit. So if their second card had a limit of 5,000 they should never use over 2,500. After using these cards for another couple of months they will see their credit on the uptrend. Once the credit is established which usually happens after a year, your creditor will lift the lien or return your funds that were used as security. If you are interested in finding out what your credit score is but not sure where to look, check out this blog.
If you want more information about this blog or have questions related to credit and co-signing, call the shopmortgages.ca team at 519-250-4848 or fill out the contact form below.
