It’s your credit card; why would you want to add an authorized user to your account? You may want to add your spouse to your account for convenience. Adding your teenager to your account can help him or her build a positive credit history or repair a bad history (a practice known as piggybacking). As an employer, you may wish to add an employee as an authorized business account user to simplify accounting for trip expenses or to make it easier to purchase simple supplies.
Regardless of your reasons for adding an authorized user, it is important to understand what that term means — as well as understanding the rights, responsibilities, and obligations involved in the authorized user and primary cardholder relationship. Consider these seven tips before making your decision.
1. Authorized Users Are Not Legally Liable For Debts – Only grant someone authorized user status on your account if you fully trust him or her, or are willing to pay any debts that he or she incurs. As the primary cardholder, you are legally liable for such debts and are responsible for the payments. Make sure that your authorized user understands the favor that you are granting him or her by allowing them access to credit without the legal liability to pay it.
2. Authorized Users Have Limited Powers – The authorized user may have his or her own card under your account number, and has the ability to use it up to the designated credit limit just like you do as the primary cardholder. However, authorized users cannot make changes to the account such as altering the credit limit or adding other users.
3. An Authorized User is Not A Joint Account Holder – In a joint account, both parties are equally responsible for the debts on the card and have the same ability to make changes to the account. Authorized users do not have equal status in the account.
4. Primary Cardholders Can Set Different Credit Limits – As the primary cardholder, you can choose to lower the credit limit on the authorized user's account. This is helpful for situations like adding your children to your account and allowing them to show you that they can use credit responsibly before extending a limit.
5. Credit Effects Are Shared — Usually – While authorized users are often added for credit-building purposes, some cards do not report the activity of the authorized user to the credit bureaus. It is important to check with your card issuer to verify that activity is reported to the credit bureaus, assuming that you want it to be reported. Remember that the effects are shared under both good and bad credit card practices, and your credit scores will be affected accordingly. If you want to see your credit report and credit score within minutes without charge, try Credit Manager by MoneyTips.
6. Authorized Users Can Be Removed – If the relationship between the primary cardholder and the authorized user goes astray, either party can remove the authorized user from the account by making a simple call to the card issuer.
7. Set Rules and Make Contingencies – Make sure you and your authorized user agree on the ground rules of using the card. Putting them in writing is not a bad plan. Even with such an agreement, it is wise to make contingency plans in case credit problems arise.
It's a generous act to add an authorized user to your account, and also a potentially dangerous one. However, if you understand the risks and are willing to accept them, you can potentially help someone on their journey toward solid and predictable credit. Make your decision wisely.
If you want more credit, check out MoneyTips' list of credit card offers.