What is an Authorized User Account?
An authorized user account is a type of credit card account where you are permitted to make purchases but are not legally responsible for paying the bill. Typically, a parent adds a child or one spouse adds another to their credit card. The primary account holder is solely responsible for the debt.
How It Affects Your Credit Score
When you become an authorized user, the entire history of that account can be added to your credit report. This includes:
- Payment History: If the primary user always pays on time, this positive history appears on your report.
- Credit Utilization: The account's balance relative to its limit impacts your overall credit utilization ratio. A low-balance card can help your score.
- Age of Credit: If you're added to a card that's been open for 15 years, it can significantly increase the average age of your credit history, which is a positive scoring factor.
However, this can also backfire. If the primary user makes late payments or carries a high balance, that negative information will also appear on your credit report and can damage your credit score.
Lender Scrutiny: Credit Bureaus vs. Mortgage Underwriters
Credit bureaus like Equifax, Experian, and TransUnion simply report the data they receive. Their scoring models, like FICO, often interpret authorized user accounts as a positive factor, leading to a higher credit score. Mortgage lenders, however, have a different objective: to assess your personal risk and ability to repay a large loan.
An underwriter’s job is to verify that your credit score accurately reflects your own financial habits. They will scrutinize your credit report to distinguish between debt you manage yourself (primary tradelines) and debt you've simply 'inherited' by being an authorized user. They are specifically looking for signs of 'credit piggybacking', where a borrower with a thin or poor credit file uses authorized user accounts to artificially inflate their score without demonstrating a genuine history of managing their own credit.
Can a High Balance on an AU Account Get My Loan Denied?
Yes, an authorized user account with a high balance can absolutely jeopardize your mortgage application. Even though you are not legally responsible for the debt, the monthly payment associated with that account can be temporarily factored into your debt-to-income (DTI) ratio.
Here’s a practical example:
- Your monthly income is $7,000.
- Your own debts (car loan, student loan) total $1,200 per month.
- You are an authorized user on your parent's credit card, which has a $20,000 balance and a minimum monthly payment of $500.
An underwriter might initially add that $500 payment to your liabilities. Your total monthly debt would become $1,700 ($1,200 + $500). This would increase your DTI ratio from 17% to over 24%. While this specific increase might not cause a denial, if you are already near the maximum DTI limit (often around 43-50%), this extra 'phantom' debt could be the factor that gets your loan denied. (The data, information, or policy mentioned here may vary over time.)
How to Prove You're Not Responsible for Authorized User Debt
If an underwriter flags an authorized user account, the burden of proof is on you to show that you are not the one making the payments. Simply stating it is not enough. The industry-standard method for proving this is to provide documentation.
You will need to obtain 12 consecutive months of bank statements or canceled checks from the primary account holder. This documentation must clearly show that they have been making the payments on the account from their own funds. Once this evidence is provided and accepted, the underwriter can exclude the monthly payment from your DTI calculation, clearing the path for your loan approval.
Should You Remove Yourself as an Authorized User?
Deciding whether to remove yourself as an authorized user before applying for a mortgage is a strategic decision that depends entirely on your credit profile.
When to Consider Removing an AU Account
- The account has negative history: If there are any late payments on the account, remove yourself immediately. That negative history is hurting your score.
- The account has a high balance: If the credit utilization is high (typically over 30%) and the primary user cannot or will not pay it down, removing the account can improve your own utilization ratio.
- You have sufficient credit of your own: If you have at least 3-4 primary credit lines (like a car loan, student loans, or your own credit cards) with a solid two-year history, you likely don't need the AU account to qualify.
When to Consider Keeping an AU Account
- You have a thin credit file: If you have very few accounts in your own name, a long-standing AU account with perfect history can be crucial for meeting the minimum credit requirements.
- It provides significant credit age: If the AU account is much older than your own accounts, it can substantially boost the average age of your credit history, which is a key scoring factor.
Never make sudden changes to your credit profile without first consulting your mortgage loan officer. They can run a simulation to see how removing the account will affect your score and overall loan eligibility.
Will Lenders Count the Positive Payment History?
This is where automated underwriting systems (AUS) come into play. Lenders use systems like Fannie Mae's Desktop Underwriter (DU) and Freddie Mac's Loan Product Advisor (LPA) to get an initial approval.
The AUS may initially accept your credit score, including the boost from a positive AU account. However, a human underwriter will always perform a final review. If your credit profile is weak without the AU account, the underwriter may manually downgrade your loan file or issue a denial. They want to see that you have a proven track record of managing debt. The positive history from an AU account is seen as a secondary, supporting factor, not a primary qualifying one.
Fannie Mae vs. Freddie Mac: A Tale of Two Guidelines
Fannie Mae and Freddie Mac are the two largest government-sponsored enterprises that set the rules for most conventional loans in the U.S. Their guidelines on authorized user accounts differ slightly.
Fannie Mae (DU)
Fannie Mae tends to be more lenient. The DU system is often sophisticated enough to identify and sometimes disregard AU accounts if the borrower's own credit history is strong enough to stand on its own. If the borrower meets minimum credit requirements without the AU tradeline, DU may issue an approval without requiring documentation. However, if the AU account is essential for meeting the minimum credit score or if its balance negatively impacts DTI, the lender will be required to get the 12 months of payment proof from the primary holder. (The data, information, or policy mentioned here may vary over time.)
Freddie Mac (LPA)
Freddie Mac is traditionally stricter with authorized user accounts. Its LPA system is more likely to flag these accounts for manual review. The default stance for Freddie Mac is that the payment for any non-borrower debt, including AU accounts, must be included in the DTI ratio unless the lender can provide the required documentation (12 months of statements) proving the primary account holder is solely responsible for the payments. For borrowers relying on AU accounts, a loan intended for Fannie Mae may be a smoother path. (The data, information, or policy mentioned here may vary over time.)
Ultimately, a well-seasoned credit profile with your own accounts is always the best foundation for securing a mortgage in Nevada. If you're unsure how your authorized user accounts will impact your Nevada mortgage application, it's wise to get a professional credit review. A mortgage strategist can analyze your full financial picture and help you optimize your profile for a smoother approval.
Navigating the nuances of authorized user accounts is a key part of preparing for a mortgage. If you’re ready to get a clear picture of your eligibility and move forward with confidence, take the first step and apply now for a professional credit analysis.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.
