Two paths are available to share a credit card account with another person: authorized user or joint account holder. Authorized users’ and joint account holders’ credit scores are both affected by the financial behavior demonstrated on the account. Liability, however, differs considerably:
- Authorized users thumb a ride on the credit of a friend or family member. Users in this category are entitled to use the credit extended to the cardholder, but have no legal responsibility to pay the bill.
- Joint account holders, by contrast, share ownership of the account. It is the same as being a co-signer on an apartment lease, car purchase or any other transaction that involves a lender and a borrower. Both account holders are liable for repayment of the debt.
If a parent wants to teach a maturing child how credit cards work, then authorized user status for the child may be a good thing (although not without risk). On the other hand, if a friend or relative wants the convenience of a credit card but cannot qualify on his own, authorized user status may be unadvisable.
Joint accounts are the right move when both owners should share financial responsibility for the account. Joint accounts are common in families and are especially appropriate for children when the sharing adult needs full access to the account. Most adults are better served by finances that are independent and separate from others.
Shared financial responsibility is a potential minefield of dangers to your credit, your financial solvency and economic health, and your mental well being. That said, a number of situations exist in which adding an authorized user makes sense. The most common are parents teaching children about credit, and employers who issue company credit cards to employees.
Q&A Video: Can I Build Credit as an Authorized User?
Adding Authorized Users on a Business Account
Adding authorized users to a business credit card account offers two primary advantages.
- Bookkeeping: Tracking a single account is simpler than tracking multiple accounts.
- Rewards: All charges by various users contribute to one main pot of reward points owned by the primary account holder.
As with any other shared credit card situation, possible disadvantages include:
- Credit score: Each user’s credit score will reflect the account. If it is paid on time and maintains a low balance, everyone’s credit score gets a boost. If payments are late or balances are high, everyone’s score suffers accordingly.
- Unauthorized charges: Any time a third party is given access to a credit card, the opportunity exists to charge it up. Again, an authorized user can use the card but only the primary account holder is legally on the hook to pay the bill. Many business cards allow you to set individual credit limits for cards to mitigate this.
When It’s Right to Add an Authorized User
Whether to add an authorized user to an account depends both on the account holder’s needs and her willingness to take on the risk. Authorized user status is an extension of trust and must be taken very seriously. Under most circumstances, close monitoring of the account is essential.
Adult Family Members
Only add an authorized user as a matter of convenience when the person is 100% trustworthy. For example, husband and wife wish to share a credit card in order to reach bonus point thresholds more quickly.
In some states, married couples are jointly liable whether both parties are named or not. Where that law does not apply, spouses who authorize users should do so with full awareness that financial behaviors can change with lightning speed when relationships break down.
Add a teen as an authorized user only after the child has demonstrated successful management of a debit card account. Review the account frequently, and transition the child to a separate charge account at the earliest opportunity.
Add an authorized user only after a clear credit card policy is established and published. The policy should cover responsible use, allowed purchases, eligibility, liability, the expense tracking process and any other particulars unique to the company.
Also, prior to its implementation, the policy should be reviewed by legal counsel. Monitor accounts daily or weekly, and take advantage of the account management tools that are likely offered by the card issuer.
Breaking the Connection
An authorized user on another person’s account may wish to break the connection, particularly if the primary account holder cannot be trusted to maintain the account in good standing. Remember, all users’ credit scores will reflect the account. To remove your association with the account, go directly to the creditor with the request.