An authorized user is someone who holds a credit card in his or her name but is not the primary cardholder of the account. For example, you could get a credit card for your spouse on your credit card account in his or her name and they could use it as their own. But while they can use the card without restriction, an authorized user never has an obligation to make payments, not even on their own charges.
That’s because payment of the account is the sole responsibility of the primary account holder. So it’s important to be wary if you’re considering adding an authorized user to your account and ensure that you and the authorized user understand and respect the credit and financial obligations.
With that in mind, you might be wondering why on earth you would want to add an authorized user to your account. Well, it can be very beneficial for one or both parties.
“It can certainly be a convenience if you have a trusted friend or family member who may need to make transactions on your behalf occasionally,” said Thomas Nitzsche, media manager for ClearPoint Credit Solutions. “One example is in the event of hospitalization or other emergency, the authorized person can keep up on your affairs.”
Of course, there are other reasons to consider adding an authorized user.
How Being an Authorized User Can Build Credit
For the authorized user, being added to someone else’s credit card account can be a credit-building plus, as long as the primary account holder pays the account as agreed. Keep in mind, though, this can depend upon the credit card issuer.
Some credit scoring models have discontinued the practice of allowing authorized users to ‘piggyback’ on the good credit of the primary account holder with an authorized user credit card, though it does still happen.
If you’re thinking of adding an authorized user for that purpose, you’ll first want to check with the card issuer to see if they report authorized users to the credit reporting agencies, and, if so, if the account is reported as if it was their own.
If it is, the credit account will be listed in the authorized user’s credit file. And this will help the authorized user to build and improve his or her credit score, as long as the primary account holder continues to make on-time payments to the account.
Do keep in mind, though, that the authorized user’s misuse of your card could end up having a negative impact on your credit, and even your finances.
“The most important thing to remember is that authorized users can use the account whenever and however they wish, with no legal responsibility to pay you or the card issuer back,” said Nitzsche. “For this reason, you may want to consider putting text alerts on the account so that you know in real time when it’s being used instead of waiting for the statement to show up.”
How Adding an Authorized User Impacts Your Credit
When you give someone else access to your credit card account as an authorized user, it means both you and the authorized user may make purchases. This can impact the primary cardholder’s credit utilization ratio, which accounts for 30% of a credit score.
For example, if an authorized user goes on a massive spending spree and charges more than a primary cardholder is able to pay back, even as a minimum monthly payment, the primary cardholder’s payment history, the single largest factor in determining a credit score, can be negatively impacted. Payment history accounts for 35% of a credit score.
That’s why it’s so important that an authorized user act responsibly when making credit card charges. And why it is so important that the primary cardholder monitors the spending on the account carefully and pays the account as agreed.
And remember, if an authorized user on one of your credit cards isn’t working out, you can remove the authorized user with a quick phone call to your credit card issuer.
That’s one of the big differences between an authorized user and a joint account holder.
Authorized Users Vs. Joint Accounts
A joint account is a credit card held equally by the primary account holders. That means not only equal access to the line of credit, but also other elements like the ability to dispute charges, request a credit limit increase, close the account and transfer balances, and so on.
Likewise, it means joint responsibility for payments. Because both primary account holders are responsible for paying back debt, any delinquency or default will be reflected on both account holders’ credit histories. That can become a big problem in the event that the couple separates, so it’s important to keep that in mind as you decide whether joint or separate accounts might be best for you.
Whether you’re the primary account holder, authorized user or have a joint account on a credit card, it’s important to keep an eye on your credit. By monitoring your credit scores, you can track your progress and watch for negative changes that could indicate a problem with your credit. You can get a free credit score at Credit.com.
Constance Brinkley-Badgett Contributed to this article.