Authorized user accounts can be an excellent tool for building credit—but they can also create unexpected issues when qualifying for a mortgage.
Understanding how lenders view authorized user accounts can help you avoid surprises during underwriting.
What Is an Authorized User Account?
An authorized user is someone who is added to another person’s credit card account without becoming legally responsible for the debt.
Unlike a joint account holder, an authorized user typically does not sign a credit agreement or promise to repay the debt. The primary cardholder remains responsible for making the payments. And the authorized user can be given a credit card to charge or authorization.
Many parents add children and in other instances spouses add one another, to help establish or strengthen a credit history.
How Can an Authorized User Account Help?
Authorized user accounts can be especially beneficial for consumers with limited or no established credit history.
If the primary cardholder has:
- A long history of on-time payments,
- Low credit utilization,
- An older account age,
Those positive characteristics may appear on the authorized user’s credit report and can help establish the minimum trade lines often needed to generate a mortgage credit score.
For first-time homebuyers, this can be a valuable credit-building strategy.
How Can It Hurt?
Authorized user accounts can also work against a borrower.
If the primary cardholder:
- Makes late payments,
- Carries high balances,
- Maxes out the credit card,
Those negative factors may also appear on the authorized user’s credit report and can reduce the mortgage credit score.
High utilization on an authorized user account may lower FICO® scores even though the authorized user isn’t legally obligated to repay the debt.
In many cases, the monthly payment on an authorized user account does not have to be included in the borrower’s debt-to-income ratio if documentation confirms the borrower is not responsible for the debt. Individual lender overlays may apply.
What Do Fannie Mae, Freddie Mac, FHA, and VA Require?
Fannie Mae and Freddie Mac generally allow authorized user accounts to be considered during underwriting, but underwriters may request documentation when those accounts materially affect the credit profile.
FHA permits authorized user accounts and, in some cases, allows positive payment history to support a borrower’s overall credit profile. Underwriters may request additional documentation if significant derogatory history appears on the account.
VA also permits authorized user accounts but focuses on the borrower’s overall willingness and ability to repay. Individual lenders may have additional underwriting overlays.
When Should an Authorized User Account Be Removed?
Sometimes removing an authorized user account is beneficial before applying for a mortgage.
Examples include:
- High credit card utilization.
- Recent late payments.
- Large balances reducing credit scores.
- Significant derogatory history.
After removal by the primary card issuer, the account must update with Experian, TransUnion, and Equifax. If timing is critical, a Rapid Rescore may be used to update the mortgage credit report once documentation confirms the borrower has been removed as an authorized user.
In other instances, if the authorized user account is the only trade-line or one of three, an underwriter can ask for the authorized user account to be removed and rescored – for those with very limited credit.
Final Thoughts
Authorized user accounts can either strengthen or weaken your mortgage application depending on how the primary account is managed. Before adding or removing an authorized user account, consult your mortgage professional. A review several months before applying can determine whether the account is helping your mortgage score—or whether removing it may improve your financing options in the Temecula Valley.
