A Simple Strategy for Increasing Your Credit Score
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I recently added my wife as authorized user on 2 accounts and was able to give her credit score a shot in the arm, bumping it to just over 800. This tactic can give your credit score a small boost, but if you really want a healthy credit score it’s best to take a long-term approach. There is no trick that will beat consistently paying your bills on time and paying down your debts.
I’ll show you why it helped her credit score and what you need to be aware of before you try the same strategy. And once you’ve got your credit back on track, you’ll be ready to start making those travel dreams a reality with the best travel credit cards.
Simple Trick for Boosting Your Credit Score
The first step in increasing your credit score is understanding how it’s calculated.
For the most part, these are the main factors to look at:
- Credit utilization ratio – How much money do you owe compared to the amount of available credit you have
- Payment history – Have you paid your bills on time
- Hard inquiries – How many times have banks or other lenders looked at your credit. A credit card application will result in a hard pull, but opening a bank account usually only results in a soft pull, which won’t impact your score
- Age of accounts – This is the average age of all of your accounts
- Derogatory marks – Do you have any bankruptcies, foreclosures, etc. on your report
I’ve got a couple of credit card accounts that are more than double the age of my wife’s oldest account. I’ve have a no-annual-fee Discover card and a no-annual-fee Capital One Platinum Credit Card for 10+ years each.
Currently, the average age of my wife’s accounts is about 4.5 years. So I added her as an authorized user to both of my oldest credit cards. Once they showed up on her credit report, it pushed the average age of her accounts to 5+ years. This gave her a small 7 to 15 point boost, because your average age of accounts is weighted less than other factors. But depending on what your credit report looks like, it could have an even bigger impact.
My wife already has an exceptionally low credit utilization ratio. But if she didn’t, adding extra account could have helped lower her utilization, which would have had a much bigger affect on her score. Let’s just say for example, she had $5,000 in available credit and a $2,000 balance. That’s a 40% credit utilization ratio, which is high. The cards she was added to as an authorized user both have $5,000 credit limits. So overnight, she would increase her available credit to $15,000 and dropped her credit utilization ratio down to 7.5%!
Adding someone as an authorized user can also be a good way for them to start to build credit. Jasmin does this all the time with her children. But there are some potential drawbacks you’ll want to be aware of.
What to Watch Out For With Authorized Users
When we talk about credit scores, it’s important to remember that there is no single official score and not all of them include authorized user accounts when calculating your score. FICO is the most popular credit score and they do factor in authorized user accounts, but that won’t necessarily be the case for all credit reporting agencies.
Also, adding someone as an authorized user could affect what cards they are eligible to apply for in the future. For example, you won’t be approved for any Chase credit card (like our #1 card for beginners, the Chase Sapphire Preferred Card) if you’ve opened 5 or more credit cards from any bank in the past 24 months. This is known as the Chase “5/24” rule and authorized user accounts are included in the count! So if you add someone as an authorized user, it could add to their “5/24” count (some folks have had success asking Chase to not consider these accounts if they’ve been denied for a card because of 5/24).
You’ll also want to be careful who you add to your account, because at the end of the day, you are responsible for paying the bill. And if the account you are being added to has a large balance, it might even negatively impact your credit utilization ratio.
So being added as authorized user isn’t a magic pill for your credit score, but it can be a useful tool.
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