It’s common for parents, employers, and couples to add authorized users to their credit card accounts (or even their debit cards and prepaid cards), thereby giving these individuals the ability to make purchases without assuming payment liability or having to qualify for their own cards. This unique type of financial relationship has its share of advantages and disadvantages as well as important implications for both parties’ credit standing. It’s therefore worth familiarizing yourself with the ins and outs of authorized use before opening your financial life up to another party.
We’ll examine the following issues in detail below:
An authorized user is, simply put, someone whom you’ve granted financial account access to. Most people associate authorized users with credit cards, and while you can also add authorized users to checking accounts and prepaid cards as well, we’ll focus primarily on credit card authorized users in this article. But don’t worry, the dynamics are essentially the same for all types of authorized users.
The extent of an authorized user’s access to a credit card or other financial account depends on the situation as well as the type of account in question. For example, some credit cards enable you to completely customize an authorized user’s account access with unique spending limits and management options, while others give them full access to the account’s credit line and necessitate that the involved parties lay out their own usage ground rules.
Regardless, there will be a single monthly bill for an account that has an authorized user, and it will be sent to the primary accountholder. Many people expect the primary accountholder and the authorized user to receive their own bills, but that’s not how things work.
The decision to add an authorized user to your credit card or other financial account necessitates carefully weighing the risks and rewards of such a joint account, as there are certainly a few of each.
- Valuable Experience: Becoming an authorized user not only enables people who cannot qualify for their own accounts to use plastic earlier than they would otherwise be able to, but it also helps them learn how to manage their money responsibly in a low-pressure, relatively low-risk environment.
- Convenience: It’s simply easier to put a credit card in your wallet than to make sure you’re always carrying enough cash. It’s also easier to manage a single credit card account than it is to keep tabs on a few different ones. The logistical advantages of plastic are therefore often a driving factor for authorized use, especially for families with underage children and couples that pool their money.
- Emergency Spending: No one wants to leave a significant other stranded with no money for things like gas, car repairs, alternative transportation, or a hotel room. Adding them as an authorized user on a credit card is one of the best ways to eliminate such concerns, especially when the authorized-user-to-be doesn’t have an independent income source or much credit history.
- Credit Building: When you’re an authorized user on a credit card account, this “trade line” will be noted on your credit reports and will help you build a bit of credit history. You can’t get a good credit score by simply being an authorized user, but you can create enough of a financial track record to obtain a more attractive starter credit card than you would be eligible for otherwise.
- Liability: It’s important to realize that the primary accountholder is legally liable for everything an authorized user does. In other words, when you agree to give another person access to your account, you also agree to pay for their purchases and deal with the consequences of their mistakes. You can make special arrangements with your authorized user when it comes to payment and other logistics, but the buck ultimately stops with you.
- Credit Score Damage: The credit scoring fortunes of an authorized user and a primary accountholder are tied, albeit with the latter receiving the lion’s share of the credit (literally) for responsible use as well as the blame for mistakes. That means if you miss payments or even default, it will damage your credit standing as well as that of the authorized user. If the authorized user racks up a bunch of costly charges, you’ll feel it in your wallet and potentially your credit reports (if you miss payments as a result of the additional debt burden).
- Strained Relationships: If things go south, people will inevitably point fingers. Blame and resentment can be corrosive to relationships, which means you shouldn’t add an authorized user unless you are so close with that person that your bond could overcome a bit of financial mismanagement, albeit with lots of scolding.
You can make anyone an authorized user on one of your financial accounts, and you don’t even need to give your bank much information to do so. All you need is the person’s name, date of birth, and in some cases, their Social Security Number. But just because you can add someone as an authorized user doesn’t mean you should. As the primary accountholder, it is your credit score, reputation, and money on the line. It’s therefore extremely important that you fully trust someone before making them an authorized user.
“Ask yourself if it’s a good idea to get involved in a financial relationship with this person,” Lisa Bolton, a marketing professor at Pennsylvania State University who focuses on consumer insights, recommends. “The more established of a relationship and the more trust between the people, the better off it’s going to be.”
That’s why some of the most common authorized user relationships are:
- Parent – Child
- Employer – Employee
“There’s some abuse of [authorized use] as well where actually there is almost no real relationship and people are being put on cards to help people’s credit history,” Bolton says. “That’s not the purpose of it and that shouldn’t be done because it’s becoming a big problem for credit card companies and it’s going to put at risk this opportunity for people who are using it for legitimate purposes.”
Adding & Removing:
Most credit card issuers will allow you to add an authorized user over the phone, through a paper application form, or online — with the last option being the simplest.
Removing an authorized user is just as easy. All you have to do is call and ask the bank to take the person’s name off of your account account. This will revoke their access and deactivate their card.
Finally, consumers often want to know how they can remove an authorized user from a credit report. If you are the primary accountholder, the fact that you have an authorized user will not be listed on your credit reports to begin with. Rather, the account information will be displayed on the authorized user’s credit reports. While you cannot remove a legitimate tradeline from a credit report – whether it’s yours or someone else’s – removing an authorized user’s account access will stop new information about the account from being added to the report in the future.
- Evaluate Your Relationship: Before adding someone as an authorized user, you really need to consider whether that person is financially responsible enough to handle the task as well as what the next few years may hold for your relationship. This is particularly important for parents dealing with teenagers or couples who’ve been experiencing difficulties.
- Weigh the Pros & Cons: Now that you understand the risks and rewards of adding an authorized user, you need to determine which wins out in your particular situation. Trust your gut; if, deep down, you don’t feel that it’s a good idea, just say no.
- Lay Out the Ground Rules: Before setting an authorized user loose with a credit card tied to your account, explain your usage expectations (i.e. monthly spending limits, repayment requirements, etc.) as well as the repercussions for mismanagement.
- Make Contingency Plans: You don’t want to be surprised by anything your authorized user might do. So, consider how you’d handle various situations that might crop up – from overspending to refusing payment – so that you can act immediately if necessary. Setting up account alerts for different types of worrisome transactions – a charge above $200, for example – can be extremely helpful in this regard.
- Have an Open Dialogue: It might be a good idea to schedule periodic sit-downs with your authorized user to discuss how things are going as well as what potential changes you might need to make to your agreement. Ultimately, open communication is the key to avoiding mistakes and animosity.
Adding an authorized user to your credit card account is one way to provide a close friend or family member with a means of making emergency purchases and establishing a bit of credit history without necessitating that they qualify for their own account. However, the relationship is not without risks, and it’s important to carefully consider them prior to adding an authorized user.