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Benefits and Risks to Adding Authorized Users to Credit Cards
Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
If you have a family member or close friend with poor or limited credit, adding them as an authorized user to your credit card is an effective way to help them build or establish their credit. Just know — adding an authorized user comes with some risk, since you will ultimately be responsible for any debt accumulated while using the card.
Before adding an authorized user to your credit card account, review the pros and cons listed below to help determine if it’s the right move for you.
What is an authorized user?
Many issuers allow the primary account holder to add a secondary account holder to a credit card. Known as an authorized user, this person can make purchases using the credit card, but has no legal responsibility toward the debt.
While authorized users receive their own credit card, they do not have all the same permissions as the primary account holder. For example, authorized users typically cannot redeem rewards, request a credit line increase, close the account or add another authorized user. However, depending on the issuer, they may be able to obtain the account balance, request statement copies and make payments.
The process of adding an authorized user to your credit card account is relatively easy, since there is no credit check involved. Simply inform the issuer that you want to add an authorized user by phone or by logging in to your account. You will be asked to provide personal information about the potential authorized user, such as name, address, date of birth and Social Security number, which the issuer will use to verify the identity of the applicant. Once approved, the primary account holder will receive a credit card in the mail with the authorized user’s name on it.
The number of authorized users you’re allowed to add to your card varies depending on the issuer, and there may be a minimum age requirement. For example, Discover requires authorized users to be at least 15 years of age. Also know you may be subject to an annual fee for the authorized user account.
Pros of adding an authorized user
Help a family member or friend build credit. If you practice responsible card usage (such as paying your bill on time each month and keeping your credit utilization ratio low), allowing someone to piggyback on your credit card account is an easy way to help boost their credit — since your credit card activity will be reported on the authorized user’s credit as well.
You can also help your teen (including those under 18 who can’t qualify for a card on their own) establish credit at an early age by adding them to one of the credit cards in your wallet.
Once the authorized user’s credit score rises to the desired level, it’s best for them to apply for their own card and have the primary account holder remove them as an authorized user.
Just know, while most major credit card issuers — including American Express, Barclays, Bank of America, Capital One, Chase and Citi — report authorized users to the credit bureaus, some regional banks and credit unions may not. Therefore, it’s best to verify with the bank prior to adding an authorized user to your credit card.
Earn more rewards. In addition to offering rewards on the purchases you make, rewards credit cards often allow you to earn rewards on purchases made by authorized users. These rewards can typically only be redeemed by the primary cardholder.
Keep unused accounts active. Because the length of your credit history (including how long your accounts have been open) makes up 15% of your credit score, It’s best to avoid closing old credit card accounts whenever possible.
If you have an older account that isn’t being used and is at risk of closing, you may benefit from adding an authorized user who will make charges and pay the bill on time each month. In addition to keeping the account open, the positive payment activity will show up on both of your credit reports.
Share one card account. Adding a spouse or child as an authorized user is a convenient way to keep track of household spending in one account. Additionally, if you are a small business owner, adding a trusted employee as an authorized user allows them to make purchases for the company using your business credit card account.
Cons of adding an authorized user
You are solely responsible for charges made to the card. As the primary cardholder, you are ultimately responsible for the repayment of all charges made to your credit card account. So if the authorized user charges a substantial amount on the card and struggles to pay their portion of the bill, the primary cardholder will have to cover it. Additionally, because your credit utilization ratio — the amount you owe compared to your overall credit limit — makes up 30% of your FICO Score, your credit score can be negatively impacted if the authorized user racks up a large amount of debt.
To help minimize the risk of your credit score taking a hit, set up spending limits for the authorized user (if possible) and keep your credit utilization ratio well below 30%.
Annual fee — sometimes. Some credit cards charge an authorized user fee each year, which is typically less than the card’s annual fee. For example, The Platinum Card® from American Express charges a $695 annual fee for the primary card account, and a $175 annual fee for up to three additional cards. The annual fee for the fourth card and each additional card after that is $175 per card.
Alternatives to adding an authorized user
If you want to help your family member or friend establish or improve their credit — but don’t want to take on the risk of adding them as an authorized user — you may want to consider these alternatives instead:
Secured credit card. Secured credit cards are designed for individuals 18 or older with limited or poor credit history. These cards typically report to the three major credit bureaus (Experian, Equifax and TransUnion) and require a security deposit — which serves as a line of credit. In most cases, you can receive your security deposit back if you pay off your balance in full and close your account or transition to an unsecured card. Just know, these cards often charge higher interest rates than standard credit cards.
Student credit card. If the individual looking to improve their credit is a student, a student credit card could be a good option. Similar to secured cards, student cards are designed for individuals with little or no credit; however, they do not require a security deposit. Student cards also typically offer rewards, and sometimes even provide special incentives for good grades. Just know, the student will have to be at least 18 to apply, and the application will ask to list a source of income.
Joint account holder. Adding the individual as a joint account holder is another option. This means, you and the joint account holder will share the card’s credit limit as well as legal responsibility for paying the bill.
To open a joint account, you must apply for the credit card together. The card issuer will check each party’s credit and income information, and — if approved — you will each be issued a credit card with your name on it.
We should note, the majority of banks do not currently offer joint credit card accounts.