How a Cosigner’s Credit is Affected (Cosign Vs. Authorized User)

Thinking about getting someone to cosign your loan? We look at how is a cosigner’s credit affected by you piggybacking off of their good score.

I received an interesting reader question several months ago concerning whether or not getting a credit card through a co-signer would improve the person’s credit score.

Through a series of very unfortunate events, this reader had to file bankruptcy after a divorce several years ago and her credit score has yet to rebound. She has the opportunity to open up a credit card through her brother who has offered to cosign.

The answer to this is “Yes”, so long as she makes on-time payments, and so long as the credit card issuer reports the card activity/payments to the three major credit bureaus (they are not required to do so).

However, a few interesting questions of my own came up while researching this topic in the area of how is a co-signer’s credit affected by someone else piggybacking off of it?

Would Her Financial Past Affect His Credit Score by Association?

Given her low credit score from past financial mishaps, would co-signing a loan for her decrease the credit score of the cosigner’s?

I researched online as well as called my own credit card to verify the answer to this question. A Citibank Credit Card Home Equity and Loans Department customer service rep explained to me that unless the account together goes delinquent, a person’s past will not affect the cosigner’s credit score.

What is the Difference between Getting a Co-Signer and Becoming an Authorized User?

An authorized user has permission to use the credit card, but is not responsible for any of the debt. Credit card companies often make it easy to do this by including a provision for an extra card on the application form.

The risk, of course, is that the authorized user will abuse the privilege and make charges that the primary account holder will be forced to pay (whether they can afford to or not). Otherwise, the primary account holder’s credit score will be dinged accordingly.

Authorized users cannot do any of the following:

• make payments directly to the credit card company
• change contact information
• access information online
• receive information over the phone concerning the account

Only the primary cardholder has the right to talk to the creditor about issues related to card use.

Pssst: The exception is that an authorized user does have the right to ask the credit card company to be removed from the account.

If you cosign a credit card for somebody else, you are on the hook for the debt if they refuse or cannot pay the balance. They are able to charge as much as is allowed per the credit limit, and you do not have the authority to close the account alone.

However, there are a few credit cards out there that will allow you to set customized spending limits for an authorized user that you get to set. It looks like right now, the only consumer credit card that does that is American Express.

Do Authorized User Transactions get Reported to Federal Credit Bureaus?

Credit granters make their own rules as to whether or not they report authorized users to the credit reporting agencies. Some do and some don’t. So if your account holder that you have latched onto is delinquent, you are legally not responsible for the debt, but you may very well have it show up on your credit report. This has been made evident by the North Shore Advisory staff members, they are constantly looking out for the consumers in their regular blog posts and podcast.

As far as whether or not the credit line affects the authorized user’s credit score, the answer is that it used to but no longer does. This privilege was abused as a way to boost an authorized user’s credit score, so when FICO ’08 came out it put a stop to this by not including authorized user accounts.

An Alternative to Cosigning: The Secured Credit Card

It’s important to remember that there are definite financial pitfalls of cosigning a credit card or loan for someone else. An alternative to this would be to apply for a secured credit card. A person with a sub-par credit history can generally get one of these because you put money into a savings account that equals the limit on the card (thus securing the debt). Some cards will convert to a regular credit card after 12-18 months of on-time payments, so look for these types.

Word of caution: Check with the secured credit card issuer if they will be reporting your activity to the three major credit reporting agencies. They are not obligated to do so, and if they don’t, then your credit score will not be helped. Also, be on the lookout for a schedule of fees as some secured credit cards have way too many to make it worth it.

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Amanda L Grossman

Writer and CEO at Frugal Confessions, LLC

Amanda L. Grossman is a writer and Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 13 years, her money work has helped people with how to save money and how to manage money. She's been featured in the Wall Street Journal, Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Real Simple Magazine, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here.

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