Authorized user. They are two words that can make life much easier – or very stressful – for anybody who has a credit card.
If you’ve ever considered adding someone to your credit card as an authorized user, or you’ve just heard the term and had no idea what it means, keep reading. We’re going to break down the pros and cons of having an authorized user on a credit card, not to mention the ins and outs, the sideways and byways as well as the nuts and bolts and hammers and crescent wrenches – okay, sorry, you get the idea. Let’s end this paragraph before things get too weird.
What is an authorized user?
An authorized user describes anyone who is added to a credit card account by the account owner, or primary account holder. Authorized users receive a card in their own name and can use the card to make purchases, though they are not ultimately responsible for paying the bill. This is NOT the same as you handing your credit card to your child to make a quick purchase at the store. It’s an official designation you complete with your bank.
So if you have a credit card, and you make your spouse or girlfriend or boyfriend or adult kid or maybe your favorite cousin or whomever you choose an authorized user, you are saying that they’re allowed, or authorized, to use your account.
You are also making a commitment to pay the tab for what your authorized users buys with that card account. In other words, this isn’t something you want to enter into lightly. In fact, there’s far more risk for the primary cardholder than for the authorized user in this relationship, so be absolutely certain you know and understand what you’re doing.
Pros of adding an authorized user
So why would you want to add an authorized user? There are a few reasons that benefit the primary cardholder, though it’s true that the authorized user stands to benefit even more.
- You may help a family member or friend build good credit. First of all, as you’ll see in the “cons,” this isn’t something you should be doing for everyone you know, or maybe anyone. Still, if you wanted to help your children build credit, for instance, you could add your children to your account as authorized users. Once you do, some of the information from your credit card account will turn up on their credit reports (probably; you’ll want to check with your credit issuer first as different banks have different policies related to reporting for authorized users). As long as the information furnished to the credit bureaus is showing that you’re making payments on time, that you’re not maxing out your card and so on, you’re helping your kids build a good credit history.
- You could see your own credit score and credit report improve. If you have multiple people using your credit card, but you always pay it off on time, then your credit card and how you handle it runs like a well-oiled machine. Credit scores respond positively to consistent, responsible activity, so adding authorized users could mean your card is used more consistently. Keep paying on time, every time and, as long as the new activity doesn’t also mean spending up to your credit limit, it will only help your score.
- You like simplicity. That is, maybe it’s easier to have several authorized users on one credit card rather than each member of a household having their own piece of plastic. One monthly payment and multiple users instead of multiple credit cards and multiple payments.
- You could earn more rewards. If everybody’s constantly buying stuff, you may earn more rewards than usual. Of course, if your family members are also paying down the credit card every month, maybe you’ll be arguing about how to split the rewards. But that’s a good problem to have.
- You could help a family member avoid an annual fee. Many of the best credit cards have annual fees. If you have an authorized user on your really good credit card, you may spare your spouse or adult kid or parent from having to spend an annual fee on their own credit card.
In a few cases, particularly among luxury or premium credit cards, you’ll pay an additional fee to add authorized users. The fee may very well prove worth it, but don’t let it catch you off-guard.
Cons of adding an authorized user
Unfortunately, there are a lot, and some of the downsides are pretty serious. As we’ve said, think about this before you rashly say to somebody, “Sure, you can be an authorized user on my credit card.”
With that warning out of the way, here are some of the negatives.
- You are responsible for the charges that the authorized user makes. If somehow your authorized user does not have the money to pay for what they bought on your credit card, you’d better hope that you have the cash. The payment date is going to come, whether you have the money or not. And just imagine what happens if you, say, put a boyfriend or girlfriend on your credit card as an authorized user and you two head for Splitsville? If you don’t immediately think to remove your ex from your credit card, you could be responsible for an emotional shopping spree your ex made right after the breakup (as well as all the charges made before you two parted ways). Use your imagination, and you can conjure up a lot of ways that having an authorized user on your credit card could end up being a complete financial nightmare. In most cases, an authorized user has full access to the credit line available on the card, which could lead to substantial debt.
- You could see your credit hurt. If an authorized user spends a fortune and your credit card grows overloaded with charges you can’t pay off, you could suddenly find yourself carrying revolving debt for months on end. That, of course, means interest charges, but that high credit utilization could also damage your credit score and, eventually, your entire financial portfolio.
- You could hurt your loved ones’ credit. As the primary cardholder, your payments and credit card use, both the responsible and irresponsible choices, could impact your authorized users’ credit. That makes this both a pro and con to adding authorized users. Sure, you could help them, but you can also hurt them.
- There may be fees involved. Most credit cards will let you add an authorized user for free, but some elite credit cards charge extra annual fees for authorized users. CardNamediscontinued, for instance, charges $195 to add up to three authorized users. That’s on top of the regular AnnualFees annual fee (See Rates and Fees; American Express is a CardRatings advertiser). Similarly, CardNamediscontinued, charges $75 per authorized user (on top of a AnnualFees annual fee).
- Check the fine print. Aauthorized users don’t always get the same privileges and perks as the primary user. They’ll earn rewards and be able to spend like a primary cardholder, but they may not have access to some of the extras, especially when it comes to things like airport lounge access, travel credits or Global Entry/TSA Precheck application fee reimbursements.
- Your finances may become more confusing. If you’re not living paycheck to paycheck, and you know you can handle paying off whatever your family piles onto the card, that’s one thing. Maybe, for instance, you want your teenagers to pay for a few odds and ends every month, and you’ll handle paying off the card. But if you’re counting on family members or a friend to pay their own way with the card, you could struggle to keep track of who has paid for what. Then again, adding your college student, for instance, as an authorized user could make paying for their expenses while they’re away at school a little simpler.
Does being an authorized user affect my 5/24 status?
What is a 5/24 status? It’s the unofficial Chase policy that you can’t be approved for any Chase card if you’ve opened five or more personal credit cards from any institution in the past 24 months.
(It’s unofficial in that it used to be published on a Chase application page. The language was removed, but it’s widely understood that the rule is still in effect.)
And the answer is both yes and no. As an authorized user, Chase MIGHT decline your application for a new card, but there’s plenty of anecdotal evidence out there that you can have that application reconsidered by calling Chase customer service and explaining you don’t own the account, but are just an authorized user. In other words, it can affect your application for a new Chase card, but it shouldn’t ultimately be the thing that prevents you from getting the card. You just might need to jump through an extra hoop or two.
Do authorized users build credit?
Yes, generally. It would behoove you to make sure by checking the fine print or calling customer service that your credit card issuer will report your authorized user’s information to the credit bureaus, but most do. Still, sometimes there are exceptions. For instance, some credit cards won’t report information to the credit bureaus if the authorized user is a minor. In that case, the authorized user wouldn’t be building credit.
And remember: It goes both ways. An authorized user can see their credit score drop if the primary cardholder isn’t making timely payments every month.
Which credit card companies report authorized users?
Virtually all. That said, all credit cards will report information a little differently, which is why you’ll want to check the terms and conditions or call your credit card’s customer service representative to find out how your credit card reports an authorized user’s credit card information.
For instance, U.S. Bank won’t report information if the primary cardholder’s account is delinquent (which is a gift for the authorized user). Meanwhile, American Express will allow teenagers as young as 13 to be an authorized user, but they won’t begin reporting their information to the credit bureaus until they are 18.
How old does an authorized user need to be?
Every bank and financial institution makes their own rules – just as you set your own rules for your kids, from when bedtime is to whether your child should be an authorized user on your credit card.
American Express and U.S. Bank, for instance, require authorized users to be at least 13. Discover, requires authorized users be 15. Some credit card issuers, including Chase, Capital One and Bank of America, among others, don’t have a minimum age.
In some cases, banks won’t report to the credit bureaus until the authorized user reaches 18 years old, so keep that in mind. Still, If you add your 18-year-old to a credit card you’ve had for 20 years, your child’s credit report could reflect a history longer than they are old. Remember, though, that removing them as an authorized user will also remove that lengthy history.
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