Adding an Authorized User — What You Need to Know
If you have a credit card in good standing, chances are you have received communication from the credit card company offering you the opportunity to add an authorized user to your account. It’s a quick, easy process. But there can be real financial consequences if you’re not careful about who you allow to charge on your account. Here’s what you need to know before you make the decision.
Who Can Be an Authorized User?
You can choose anyone to be an authorized user on your credit card, whether it’s a spouse, sibling, teenage child, or friend. There is generally not a credit check to become an authorized user, so it’s a good way to help someone establish credit or bounce back after a financial hardship.
The person you designate will receive their own card with their name on it, but you remain the primary account holder.
Who Is Responsible for Paying What They Charge?
Because you remain the primary account holder, you are ultimately responsible for any charges the authorized user incurs. You’ll need to make arrangements to have them pay you a set amount every month to make sure you can make your credit card payment on time. If they don’t pay you, you are still responsible to cover any charges they make.
Can I Control What They Use It For?
Although you can’t control specifically what an authorized user charges on the card, you can put a limit on how much they can charge overall. For example, if you have a $10,000 credit limit and only want them to be able to charge up to $1,500, you can set that up with the card issuer. It’s basically like setting a credit limit within the credit limit.
Will Adding an Authorized User Affect My Credit?
Any new activity on your credit cards has the potential to affect your credit in a positive or negative way, depending on what it is. Adding an authorized user could negatively affect your credit if they charge too much, too quickly, which would cause your credit utilization rate to increase. Additionally, if they don’t pay you in a timely way that allows you to make your credit card payment on time, you could start seeing late fees and a drop in your credit score.
However, If they are careful with their charging privileges and pay you in a timely manner, there shouldn’t be any negative effects on your credit. Additionally, being responsible as an authorized user can help that person build credit, since account activity for those accounts will be reported to the three major credit bureaus, in most cases.
What’s the Bottom Line? Should I Add an Authorized User?
You’re the only one who can ultimately decide whether to add an authorized user to your account. If you choose to, be sure to have an honest conversation about their responsibilities and your expectations for how they will use the card and pay you. Also keep in mind that mixing family, friends, and finances always has the potential to get awkward or cause the relationship to suffer if things don’t go according to plan. Fortunately, if that happens, it’s easy to remove an authorized user from the account. Simply contact the card issues and ask for them to be taken off.