Should You Add an Authorized User on Credit Cards? Pros & Cons
Adding someone else as an authorized user on your credit card can be an effective way to help them to build or improve their credit score. An established credit card user with a great credit score can decide to utilize their excellent credit history by allowing someone with a poor score to reap the benefits.
The authorized user will be able to apply for credit using your credit history, record of on-time payments and long standing good behavior on your credit card account. This can be an excellent way for younger family members to begin building a credit history until they are able to apply for a card of their own.
But choosing to add an authorized user to your card can affect your credit and may inhibit your own ability to apply for financial products later. This is because just as your good financial behavior will reflect well on your authorized user's credit record, if they run up huge debts on your card this will start to drag your own credit score down.
Below we will look at the pros and cons of adding an authorized user to your card, how to add an authorized user and how this process can affect the primary cardholder.
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What is an Authorized User on a Credit Card?
An authorized user on a card is a person who has been placed as a joint user on a credit card by the primary cardholder. The authorized user can make payments using the card and will have access to utilize the positive credit history of the primary card holder.
It will be the primary card owner's payment history which will show up when an organization runs a credit check on the authorized user. (As long as the card reports to the three Equity Bureaus - Equifax, Experian and TransUnion.)
An authorized user on a primary cardholder's account is usually a family member, partner or very close and trusted friend.
However, adding someone ads an authorized user on your credit card is not a decision you should take lightly, even if you are considering adding a family member. To make an informed decision you need al the facts about the possible pros & cons of adding an authorized user. Read below to discover whether you should go forward with the process.
Pros of Putting Adding Authorized User to Credit Cards
Pros of Adding an Authorized User on Credit Cards.
- There is no legal age limit for an authorized user. So, this may be a great way for you to help your teenage children to begin building up a positive credit history under their name. This will put them in a stronger position when they apply for their first credit card. (Please note each credit card issuer will have their own age requirements they have personally set.)
- Give someone access to a Credit Card. If a family member or trusted friend needs access to a credit card, but their applications are not being accepted due to their age or other mitigating factors. This is an effective way to allow them to start using a card until they can use a card of their own.
- You will keep ownership of the account. Although your authorized user will be able to use your card, they will only be considered a secondary card holder by the bank. You will keep ultimate authority over the account, including removing an authorized user from the account.
- Keep a rarely used credit card account open. If you have a credit card account which you are currently rarely using, but want to keep open, this could be a good way to keep it active and let it contribute to you credit score and history.
- It will help the Authorized User to Build or Re- establish a Positive Credit Score. While the authorized user is using your card, your credit history will be accessed when organizations are investigating their FICO score. For this reason it is an excellent way to repair the bad credit history of an authorized user.
- You can build up more Credit Card Points and Rewards. If two people are using the card, the amount of spending on the card will increase which should also increase the amount of points and rewards the account racks up!
Cons of Adding an Authorized User on a Credit Card
- You are Liable for All Payments. Although you have added an authorized user to your card, you are ultimately the one responsible for all payments made. So, if your authorized user is unable or unwilling to pay, you will be the one held liable.
- You are risking your own Credit Score. You need to make sure you are 100% confident in the financial behaviour of your authorized user. or else you could find that all your hard work building up your positive credit score is wiped out by their irresponsible spending.
- There may be an increased Annual Fee. Some card providers will charge you more for joint credit card use.
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A good credit score is essential to your financial security as it gives lenders a quick indication of how carefully you use your credit.
Takeaway - Should You Add an Authorized User to Your Credit Card?
Your decision about whether to add an authorized user to your account will depend upon many factors. The primary being whether you feel you can trust the authorized user to act responsibly and not hurt your credit limit, payment history and credit utilization ratio. If they use your card to rack up debts this will be reported back to credit bureaus as a reason to negatively affect the scores of both account holders.
Having said that, if you do trust the user and feel 100% confident in their spending and that they will not negatively affect your credit reports then you may choose to move forward. This can be a fantastic way for parents to help their children begin to build their credit history, learn about financial planning and put them in the best position to one day get their own credit card.