Here’s What It Means to Add an Authorized User to Your Credit Card
Adding an authorized user to your credit card is a great way to help someone increase or rebuild their credit . However, it is important to understand the consequences and potential risks. If a friend or family member has asked you to add them as an authorized user on your card, here’s what you need to know to protect your credit.
What is an authorized user?
An authorized credit card user is someone who has been given permission by the primary cardholder to use their credit card account. An authorized user usually receives their own card with their name, linked to the main account. They can make purchases, but are not legally responsible for paying bills. And they have limitations: Authorized users generally cannot make changes to the account, such as requesting a credit limit increase or adding other users. The primary cardholder can remove an authorized user at any time.
The primary cardholder still bears full responsibility.
When you add an Authorized User to your credit card, you are fully responsible for all charges incurred on the account. It includes:
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Pay the full balance, regardless of who made the purchases
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Ensuring timely payments to maintain a good credit reputation.
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Resolving any disputes and problems with the card issuer.
It is extremely important to understand that you assume financial responsibility for the purchasing habits of an Authorized User.
What happens to an authorized user’s credit?
Your account activity is typically reported on both the primary cardholder’s and authorized user’s credit reports. Adding someone as an authorized user can have a significant impact on their credit profile:
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The credit card account will appear on their credit report.
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They benefit from the primary cardholder’s positive payment history.
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An account’s credit utilization ratio affects its credit score.
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The length of your credit history may improve if the underlying account is older.
This is the main appeal of this scheme: it can help an authorized user establish or improve their credit score relatively quickly, perhaps so that they can get their own credit card.
Of course, this assumes that your credit habits are strong. You may be trying to give your teen a head start on their credit score , but any late payments or large balances can negatively impact both the primary cardholder’s credit score and the authorized user’s credit score. Before adding anyone, make sure you can consistently make on-time payments and keep your utilization levels low to avoid unintentionally damaging either party’s credit profile.
An authorized user’s credit history will not affect yours.
It’s important to note that while you are helping an Authorized User obtain credit, their existing credit history or future credit activity outside of your general account will not impact your credit profile. It means:
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Their past credit problems will not appear on your credit report.
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Any other accounts they have will not affect your credit score.
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If they are removed from your account, the account will no longer appear on their credit report.
Tips for adding an authorized user to your credit card
1. Choose wisely: Only add people you trust and who demonstrate financial responsibility.
2. Set clear expectations: Discuss spending limits, payment responsibilities, and how the card should be used.
3. Monitor account activity: Check your statements regularly to ensure your card is being used properly.
4. Train the authorized user: Explain how the credit works and the importance of responsible use.
5. Consider setting spending limits. Many credit card issuers allow you to set individual limits for authorized users.
6. Keep communication open: Maintain an ongoing dialogue about account status and any concerns.
7. Know how to remove an authorized user. Review your card issuer’s procedures for removing an authorized user, if necessary.
8. Protect your personal information: Do not share your online account login information with an authorized user.
9. Check your credit report regularly to ensure that account information is accurate for both you and the authorized user.
10. Be prepared to take action: If the arrangement doesn’t work out, be prepared to remove the authorized user to protect your credit.
Before adding an Authorized User, carefully consider your relationship with that person and their financial habits. Clear communication of expectations and responsibilities is critical to avoid potential financial and personal conflicts. And in the end, you can help someone increase their credit while minimizing the risks to their financial health.