What’s your credit score?  Is this a question that gets you nervous and makes you cringe?  Are you someone who can’t get approved for a loan or credit card or someone who is struggling to build credit?

Many of us know that a credit score is one of the most powerful tools in a financial arsenal, but it’s usually too late when we realize it.  By the time we are applying for a loan, mortgage or a flashy travel credit card that lets us travel for free, we check out our credit score, only to find out that it’s in the gutter.

Well, today’s your lucky day because we cover one simple way to greatly improve your credit score.  But before we get into the solution, let’s learn more about credit scores and how they are calculated.

DISCLAIMER:  The information in this post is not financial advice in any way shape or form, it is information used for educational purposes only.  You should consult with your financial advisor before taking any financial actions or looking for any financial advice.

What is a credit score?

A credit score is a calculated number that indicates the strength and reliability of a borrower that ranges from 300-850 (this is the FICO Score).  If you have a high credit score (above 700), banks and other financial institutions will perceive you as a reliable borrower.  A reliable borrower is someone who pays back their debt on time and rarely defaults on a loan.

If you have a low credit score (below 600-650), banks and other financial institutions will perceive you as an unreliable borrower.  An unreliable borrower is someone who does not pay their debt on time and is more likely to default on a loan.

The most common credit score used among banks and credit card companies is the FICO credit score.  FICO credit scores update bi-weekly based on 5 categories detailed below.

How is a FICO credit score calculated?

• Payment History 35%

  • Payment history looks at your credit track record ensuring you pay your bills on time.  If you never missed a payment than your payment history is perfect and you want to keep it that way.  In the unfortunate event that you do miss a payment, it stays on your credit report for 2 years and will have an impact on your credit score to reflect that.
  • Payment History weighs the most out of the 5 categories, weighing at 35%.

• Amounts Owed 30%

  • Amounts owed is the amount of money spent on your credit card statement compared to your credit line.  If you have a $1,000 limit and maxed it out (meaning your balance is $1,000), you owe 100% of your credit limit.  If you only owe $100 at the end of your statement you owe 10% of your available credit limit.  Ideally, you want to stay below 10-20% of your credit limit to help your credit score grow.

• Length of Credit History 15%

  • Lender’s love seeing positive track records on a credit report and they especially love a good track record stretched over a long period of time.  If you have two people with the same credit profile but the only difference is the length of credit history, the individual with a longer history will have a better score.

• Credit Mix 10%

  • A mix of different types of credit is good for your score (mortgage, car loan, credit card, etc) because this shows the lenders that you can manage your debt and pay back different types of credit.

• New Credit 10%

  • If you have any new credit you will likely see a minor hit on your credit score.  However, this initial hit is only temporary as you need to build several lines of credit to get a high score.  In fact, if you are striving to get a perfect FICO score of 850 then you need 21 types of credit accounts actively open on your credit report.

If you want to read more posts related to credit, check out the following:

• Credit Card Best Practices
• If you can’t get approved for a credit card, try a secured credit card
• Building Credit
• Why I use a credit card instead of a debit card

Remember, your credit score is the most powerful tool you have in your financial arsenal and it’s calculated using 5 key categories stated above.  The higher the credit score the lower the interest rates, which means more money in your pocket.  If you’re in need of fixing your credit score and looking to do it fast, there is no better way then by becoming an authorized user.

Become an Authorized User – The quickest way to improve your credit score

Are you struggling to get approved for credit cards, loans, or other forms of credit and want to increase your credit score fast?  Then, become an authorized user.

Becoming an authorized user is the quickest and easiest way to increase your credit score.  This is due to the fact that you are adding a healthy credit card account to your credit report without the financial responsibility of paying back the debt.

How does this work?  Well, it’s relatively simple, but before you ask anyone to add you as an authorized user, let’s understand how an authorized user impacts your credit score (both positively and negatively).

What is an authorized user?

An authorized user is a secondary user on someone’s credit card account who is able to make purchases in their own name using the other person’s line of credit.  Let’s use an example to make this easier to understand.

In this example, there are two individuals, Ken and Barbie with the following credit profiles.

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Ken’s Credit Profile

• One credit card
• Low credit score of 620
• Low credit limit ($500)
• Never missed a payment
• Average credit age is 1 year
• Needs to improve credit score to get better interest rates

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Barbie’s Credit Profile

• Multiple credit cards
• High credit score (above 720)
• Total available credit is $40,000 (across multiple credit cards)
• One credit card has a credit limit of $10,000
• Never missed a payment
• Average credit age is 10 years

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Example Scenario: Ken asks Barbie to add him as an authorized user

Ken asks Barbie to add him as an authorized user to Barbie’s credit card account that has a $10,000 credit limit and Barbie agrees.  Barbie adds Ken as an authorized user and within 7 days, she receives a credit card with Ken’s name on it that is linked to Barbie’s account ($10,000 credit limit).

If she wanted to, Barbie could give the card to Ken and he could make purchases using that card.  However, Barbie is responsible for paying off the purchases Ken makes on the card, not Ken.  Ideally, Barbie wouldn’t give the card to Ken, just keep it in a safe location and never use it (more on this later).

Who is responsible for paying the credit card bill?

If Barbie gives Ken the credit card and he makes a purchase on that credit card, Barbie is responsible for paying the credit card bill when the statement is due, not Ken.  This is really important when dealing with authorized users and something both individuals should be aware of.

Again, I want to reiterate, the individual adding the authorized user is the one responsible for paying the credit card bill.

The individual adding the authorized user to their account (Barbie) can simply keep the card, cut it in half, or lock it in a safe and never use it.  Why would they do this?

Well, Barbie is simply doing Ken a favor, with the goal to improve Ken’s credit score, not to allow Ken to go buy whatever he wants!  Barbie simply keeps the card, puts it in her safe and goes on with her everyday life.  There’s no impact on Barbie’s credit score by adding Ken as an authorized user, she is simply doing him a favor.

How does becoming an authorized user increase my credit?

If you have bad credit and can find someone (close friend or family member) willing to add you as an authorized user then you’re in luck.  When you’re added as an authorized user, the person’s (adding you as an authorized user) credit card account gets added to your credit profile.

So expanding on the example above, here are the details of one of Barbie’s credit card accounts.

• Opened 5 years ago
• Credit limit of $10,000
• Never missed a payment
• Balance on the credit card never exceed $1,000 (Amounts owed = 10%… 1,000/10,000)
• Balance is always paid in full at the end of every statement

Example Scenario: Barbie adds Ken as an authorized user

If Barbie follows through with Ken’s request and adds Ken as an authorized user to her credit card then this credit card account will show up on Ken’s credit report.

Ken’s credit report will show a credit account opened 5 years ago, with a credit limit of $10,000, never missed a payment, and has a balance that rarely exceeds $1,000 out of the $10,000 limit (Barbie’s account listed above).

Ken should expect a good increase in his credit score after a month or two after becoming an authorized user.

Here’s a table to further detail this out.

Credit Card Account Details	Ken’s Current Profile		Becoming Authorized User Impact to Credit Score		Ken’s New Credit Profile	Notes
Credit Age	1 year	Avg	5 years	=	3 years	Average Age between credit accounts
Credit limit	$500	+	$10,000	=	$10,500	Total Credit Limit
Missed Payments	0	+	0	=	0	Increase the length of history with no missed payments
Credit Card Ratio (Amounts Owed)	spend $300 of $500 credit limit = 60% amounts owed	+	spend $1,000 of $10,000 credit limit = 10% amounts owed	=	spend $1,300 of $10,500 credit limit = 12% amounts owed	Improved Credit Ration from 60% to 12%

Who should you ask to add you as an authorized user?

It is important to note that you should not ask anyone to add you as an authorized user.  Ideally, you want to work with a family member or a close friend, with a high credit score that is a reliable borrower, someone with the following credit card account:

• Highest credit limit possible
• Oldest account open
• No late payments, ever
• Small balance on each statement, below 10% of the available credit limit

Here’s a sample situation, let’s say your mom and dad have two different credit card accounts.

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Mom’s Credit Card Account

• Credit Limit $20,000
• Credit Card Age: 5
• No Late Payments
• Always pays statement balance in full

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Dad’s Credit Card Account

• Credit Limit $10,000
• Credit Card Age: 10
• No Late Payments
• Always pays statement balance in full

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Which account is better? 

Well, these credit card accounts are both very strong, but I would personally ask the mother in this example to get added as an authorized user since she has a higher credit limit.

Remember how a credit score is calculated? 

Amounts Owed is 30% of the FICO score compared to Length of Credit History at 15%.

Another thing to consider when asking someone to add you as an authorized user is understanding the individual’s trustworthiness/reliability.  If someone has a strong credit score today, what is the likelihood they will have it in the future?  You want to find someone financially responsible and who is financially stable, if you think the individual may run into money issues in the future, do not ask them to add you as an authorized user.

What are the risks if you are added as an authorized user?

Authorized users are in one-way shape or form similar to co-signing to a loan, but they aren’t financially responsible.  However, there are risks when getting added as an authorized user.

What are the risks?

If the individual who added you as an authorized user, stops paying their balance each statement it will have a negative impact on your credit score.  How?  Because this credit card account reflects on your credit report as an authorized user, both positively and negatively.

Note: This is only for the credit card account that you are an authorized user for, not an additional credit card account they have.

If for some reason, you are in this situation where the individual who added you as an authorized user fails to make payments on the credit card, you could ask them to remove you as an authorized user.

This will impact your credit score since you will lose their credit card details, but you should be fine if you built up your credit profile up in alternative methods, like your own credit card accounts, mortgage, car loan, etc.

If your credit report still reflects this credit account 3-6 months after getting removed as an authorized user and you want to get it removed asap, then submit a request to remove it through the consumer finance protection bureau.

Summary

At the end of the day, financial freedom is our goal.  Financial freedom is very dependent on credit scores since it has a tremendous impact on your ability to save thousands of dollars over the long term.  The higher your credit score, the better your interest rates, which means the more money in your pocket.

Key takeaways from this post.

• The quickest way to boost your credit score is by becoming an authorized user to a healthy credit card account.  Again I want to reiterate, this strategy only works when added to a healthy credit card account.  One with a large credit limit, long credit history, no missed payments, etc.
• The best candidates to ask if you can get added as an authorized user are close friends and family, someone you trust.  Again there are no risks to the individual adding authorized users to their account as long as they do not give the credit card to the authorized user.
• If you are added as an authorized user and the credit card account starts to turn for the worst, request to get removed as an authorized user.
  • If your credit report still reflects this credit account, 3-6 months after getting removed as an authorized user then you should submit a request to remove it through the consumer finance protection bureau.

Along with the many perks of high credit scores, travel hacking is one of my favorites!

If you want to start travel hacking and travel for pennies on the dollar than a good credit score is essential.  You can use this strategy above to boost your credit score and once your score is around 700, you can start traveling hacking.

You can find out more about becoming a travel hacker through our online course, Travel Hacking Secrets.  This course goes into great detail on how to accumulate millions of points and miles to redeem big on award travel.

If you have any questions or comments, please leave one below!