Does Being an Authorized User Build Credit? New Study Says Yes

We recently conducted a nationwide survey of U.S. adults aged 20-29 to learn about their credit education, their awareness and use of credit-building strategies like the authorized user strategy, and how these correlated with their credit scores.  

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Report Key Findings

Authorized User Credit Statistics

• How does getting added as an Authorized User Affect Credit Scores?
• Ethnicity: Comparing Authorized User Effect to Credit Scores
• Education: Comparing Authorized User Effect to Credit Scores
• Income: Comparing Authorized User Effect to Credit Scores
• Knowledge of Authorized User Effect
• Awareness: Paying to be an Authorized User

How Does Getting Added as an Authorized User Affect Credit Scores?

We found a direct correlation between authorized user status and good credit scores. In addition, there appears to be a direct correlation between credit awareness of those individuals who were added as an authorized user and those that had not been added.  

Of the respondents that had been added as an authorized user:

• Only 13% of authorized users had a credit score under 600, compared to 24.6% who are not authorized users.
• 46.4% had a 680 or higher credit score, compared to 27.7% who are not authorized users.
• 27.5% had a 639 or lower credit score, compared to 39.9% who are not authorized users.
• Only 10.1% didn’t know their credit score, compared with 21.8% who are not authorized users.
• 78.6% said they had a solid understanding of what affected their credit score, compared to 68.1% who had not been added as authorized users.

Comparing Authorized User Effect to Credit Scores by Ethnicity

Numerous studies have found that Black and Hispanic Americans’ credit scores are disproportionately lower, on average, than White and Asian Americans’ scores.

☝️ However

The survey revealed, as expected, that White and Asian respondents had a higher credit rating overall. However, 52.4% of non-white or Asian individuals that have been added as authorized users on a credit card had a credit rating of 680 or more. Comparing this to white and Asians who had not used the authorized user effect, only 30.5% of them had a credit score of 680 or above.

Comparing Authorized User Effect to Credit Scores by Education

Out of our respondents aged 20-29, the data below illustrates how education plays a role as an indicator of young Americans’ credit scores:

As you can see from the data above, education proved to be a leading indicator of someone’s credit score in our study.  From analyzing the data, 38.6% of all individuals who had a vocational, university, or post-graduate education had a credit score of 680 or higher.  However, this number dropped to 33.4% when the respondent had never heard of the authorized user strategy.

Where being added as an authorized user on someone’s credit card made the most significant impact was with individuals whose highest attained education was high school.  Only 19.3% of them had a credit score of 680+. However, as you can see below, these figures shifted dramatically to 36.0% for individuals that were added as authorized users.

Comparing Authorized User Effect to Credit Scores by Income

Out of our respondents aged 20-29, the data below illustrates how income plays a role as an indicator of young Americans’ credit scores:

Income is not directly used as a component of your credit score calculation, but it is a leading indicator of your score, as you can see from the data above.

Again, the authorized user effect was shown to trump income level effects in our study as well.  Overall, for individuals who earned $49,999 or less, only 24.6% of them had a credit score of 680+.  When we compare this to people from the same income-level group who were added as authorized users, 52.6% of them had a credit score of 680+.

Knowledge of the Authorized User Effect

We also surveyed our respondents regarding their knowledge of the authorized user effect and whether they had implemented it. Over a third wanted to use it but either didn’t know anyone to ask or were turned away by friends or family.

• 48.4% of Americans had never heard of the authorized user effect
• 12.1% have been successfully added to a friend or family member’s credit card
• 9.5% tried but couldn’t get anyone to add them to a card
• 30.0% didn’t have anyone to ask

Authorised user status can help your credit, but the benefits here go well beyond those provided simply by being an authorized user. The mere fact that an individual knows enough to ask to be an authorized user indicates some knowledge of credit, which will affect other factors as well. People who have friends and relatives with good credit also have better support networks and better credit information, all of which help to build credit.

U.S. Credit Score Statistics 2019

• U.S Credit Score Statistics by Age 20-29
• U.S. Average Income Level by Age 20-29

U.S Credit Score Statistics by Age 20-29

In the U.S. the best-known credit score provider is FICO, which ranges between 300 (being very poor) and 850 (being exceptional). Most scores in the U.S. would typically fall between 600 and 750 as an average – the higher the score, the more likely lenders will accept credit decisions as they know you’re more likely to repay your debt. This score is typically made up of credit utilization, credit mix, credit inquiries, payment history, and age of credit data.

Out of our respondents aged 20-29, here is the current credit score distribution:

• 38.1% of 20-29-year-old Americans had a 639 or lower credit score.
• 29.8%  had a 680 or higher credit score.
• 20.4% didn’t know their credit score.

U.S. Average Income Level by Age 20-29

In addition to the standard components that build up your credit score, lenders will also want to know your income, which is not a direct component in credit scoring. Lenders will, however, use your income as validation in terms of denying applications based on a debt-to-income ratio. Below, we looked at how credit scores of Americans aged 20-29 correlated to their annual income.

Out of our respondents aged 20-29, this was the income-to-credit-score correlation:

• 42.5% of America’s youth earning $49,999 or less per annum had a 639 or lower credit score, with only 24.6% reaching a score of over 680.
• 26.0% of America’s youth earning $50,000-$99,999 per annum had a 639 or lower credit score, with a significant jump of 42.3% reaching a score of over 680.
• 19.4% of America’s youth earning $100,000 or more per annum had a 639 or lower credit score, with a massive 48.4% reaching a score of over 680.

U.S. Credit Education Statistics

• U.S. Credit Education and Knowledge by Age 20-29
• U.S. Sources of Credit Education for Ages 20-29

U.S. Credit Education and Knowledge by Age 20-29

We asked respondents to rate their current knowledge of credit and the scoring system behind it. The report surprisingly uncovered that most young adults in America thought they had a solid understanding of credit. In fact, almost half of these respondents had low scores or no idea of their scores.

Out of our respondents aged 20-29, people with a self-proclaimed ‘strong’ credit knowledge polled:

• 39.5% had a credit score of 639 or lower, while 10.66% didn’t know their credit score (potentially almost half suffering from bad credit).
• 41.2% of respondents with a solid understanding of credit had no idea they can use bills like utilities and rent to improve their score.

U.S. Sources of Credit Education for Ages 20-29

We asked respondents how they had acquired their current knowledge of credit. The report surprisingly uncovered that self-taught Americans had the highest credit scores, on average, compared to those who had received their credit education from other sources.

Out of our respondents aged 20-29, this was the credit score data by credit education source:

• 14.8% of Americans with zero credit education had a 680 or higher credit score.
• 24.4% of Americans with high school or college credit education had a 680 or higher credit score.
• 30.5% of Americans learning from friends and family had a 680 or higher credit score.
• 35.5% of self-taught Americans had a 680 or higher credit score.

U.S. Credit Application Statistics

• U.S. Credit Applications Declined by Age 20-29
• Most Popular Bills Paid by American 20-29-Year-Olds
• Awareness: Rent & Utility Bills Helping Your Credit Score

U.S. Credit Applications Declined by Age 20-29

It can be disappointing and frustrating to have credit denied by a lender. For almost half of our young adult respondents, this was a common occurrence. Nearly half had been denied some form of credit application in the past 2 years. As we can see from the credit education data previously, many also have a poor understanding of credit.

Out of our respondents aged 20-29, below is the percentage of credit declines in the past 2 years:

• 45.6% of 20-29-year-old Americans have been declined credit in the past 2 years
• 27.7% got denied a credit card in the past 2 years.
• 14.2% got denied a cell phone purchase in the past 2 years.
• 13.3% got denied a car loan in the past 2 years.
• 10.7% got denied a property rental application in the past 2 years.

Most Popular Bills Paid by American 20-29-Year-Olds

With almost half of our respondents failing credit applications in the past 2 years and similar numbers having a poor understanding of credit, we wanted to highlight a door that could get opened for a considerable proportion of these young adults.

Below we can see that the majority of our young respondents had many active bills that were being paid on a regular basis. These people are, in most cases, navigating life with low credit scores that could receive an almost instant boost from reporting this data to credit bureaus using a variety of services.

Awareness: Rent & Utility Bills Helping Your Credit Score

Many of the services our respondents selected above are forms of rent or utility bills they pay regularly.  Unfortunately, their bill payments (even if timely and consistent) have NO impact on their credit score because these bills are not generally reported to the bureaus.  However, they can easily be reported to credit bureaus via rent reporting services.

Reporting of this additional data (known as “alternative data” in the credit space) could help the bureaus to get a better understanding of their reliability as potential borrowers.  Half of our respondents that rented and 1 in 3 with a low credit score had no idea they can use this data to boost their credit score.

• 51.2% of Americans renting property had no idea they can report rent and utility bill payments to improve their credit scores
• 35.8% of people that had a credit score of 639 or lower didn’t know they can improve it with rent and utility bill reporting services
• 1 in 4 people that didn’t know about utility reporting services also didn’t know their credit scores