Credit Card Authorized Users—How to Avoid Getting Burned
Know the potential risks for adding an authorized user to your credit card, or being added as one on someone else's card.
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You’ve probably heard about the dangers of co-signing for a credit card with a joint user and getting stuck with a big bill that you didn’t expect. Fortunately, you can choose a card relationship that comes with less risk: having or being an authorized user.
Problem is, it also comes with potential financial dangers and credit consequences for both the card owner and the authorized user. I’ll explain what an authorized user is and give tips for both parties to protect your finances and credit.
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What Is a Credit Card Authorized User?
A credit card authorized user is someone a card owner adds to his or her account. The user has permission to have a card in their name and to make charges. Unlike with a joint account owner, an authorized user is not responsible for repayment of any amount of debt on the account.
That means if you’re only an authorized user on your ex-girlfriend’s account, you’re not responsible for any amount of debt on the card. However, marriage can complicate the issue, depending on where you live.
In community property states, creditors can go after both spouses for debt incurred by either of you after marriage, no matter if you’re a joint owner or an authorized user. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is an opt-in state that gives both spouses the option to make their property community property.
A common situation for adding a partner or spouse as an authorized user is when one has good credit, but the other one doesn’t and can’t qualify for a credit card. You could get a card that's in your name and add him or her to your account as an authorized user.
Another good reason to add a user is when you have a teenager or a college student who is still a dependent. The young person receives a card to use for planned purchases or to stay safe during unexpected emergencies, like car trouble or being caught without enough cash far away from home.
Whenever you have an authorized user on your credit card, the account information and activity shows up on both of your credit reports.
How an Authorized User Affects a Card Owner’ Credit
While it seems simple for an account owner to give a credit card to an authorized user, like a child or spouse, how it affects both of your credit reports is where things can get a little confusing.
Whenever you have an authorized user on your credit card, the account information and activity shows up on both of your credit reports. If you’ve had a card for a while and add a user, your entire account history doesn’t get reported on their credit, just the activity that occurs after you add him or her to your account.
If an authorized user has a bad credit history—such as a bankruptcy, accounts in collection, or late payments—it won't affect your credit in any way. The credit histories of a card owner and an authorized user are completely separate. The only change will be the addition of the authorized user credit card account to his or her credit history.
As I mentioned, if you’re the cardholder, you typically bear all the responsibility of paying the account. It doesn’t matter if the authorized user goes on a huge spending spree that you didn’t agree to. In most cases, you’ll be on the hook for 100% of the bill.
Having unexpected charges on your account could really hurt your finances and credit, especially if you can’t afford to pay the bill on time or if new charges cause your credit utilization to suddenly go through the roof.
One tip for card owners is to regulate the credit limit for an authorized user. A nifty feature of most cards is that you can assign a limit for an authorized user that’s less than your own.
For instance, if you have a $10,000 credit limit, you could add your college-bound son as an authorized user with a $500 credit limit. You’re in charge and can increase or decrease the limit any way you like. If the user doesn't follow your rules for using the card you can simply drop them from the account at any time.
Again, the main risk you face as a cardholder with an authorized user is that the user will abuse the privilege and make charges that you can’t afford, which could hurt your credit.
Positive information, like on-time payments, gets reported to each of your cedit reports. That’s why being an authorized user is a smart strategy to build credit.