When it comes to letting someone use your credit card, most of us conjure images of wacky TV characters like Hilary Banks, the spoiled daughter of a Beverly Hills lawyer in The Fresh Prince of Bel-Air, racking up endless charges on her rich dad’s credit card without a care.
But for those of us in the real world, credit card bills, interest charges, and credit damage aren’t part of a TV script. Who you let use your card, and their spending behaviour, can have a major impact on you.
A solution to this is adding an authorized user to your account. It gives you more control (although there's still risk). Here are some key things to keep in mind when it comes to adding a secondary authorized user to your account.
What can happen if you add an authorized user to your credit card
A secondary user, also known as an authorized user, can be added to a credit card account by a main or primary cardholder. Generally, the second cardholder is able to enjoy all the benefits, including having access to the maximum credit limit available to the primary cardholder. Some issuers allow the main cardholder to set individual limits for each additional cardholder, without being liable for making payments on the account. That responsibility remains fully on the main cardholder. And, most credit card issuers restrict additional users to those individuals who are immediate family members, at least 18 year of age, and living at the same address as the primary cardholder.
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When you add someone as an authorized user, they can have their own card with their name on it, but aren’t considered a separate borrower on the account, therefore don’t require a separate credit check. Legally, the secondary cardholder isn’t liable for any charges or balances. Ultimately, the account balance and total responsibility of the card lies with you, the primary holder.
They also won't be able to simply call the credit card company to make changes or dispute charges. That power still remains with the primary holder.
How do secondary credit card users affect credit scores and history?
Authorized users aren't responsible for making credit card payments, which means that even in the event of interest charges and penalties, the primary cardholder is solely liable. However, because of this offset liability, authorized users won't be able to build credit by spending. That means if you have a poor credit history, being an authorized user on an established account in good standing will not help to improve your credit score and history. That could really hurt you if you want to take out a loan or qualify for a mortgage.
If you do want your authorized user to build credit and use your card, consider a joint credit card account.
For the primary account holder, thankfully, simply adding authorized users to your credit card accounts will not have a negative effect on the primary cardholder's credit report or credit scores, regardless of the authorized user’s previous credit history. The primary user isn’t liable for the secondary user’s past debts.
Negative credit card activity, however, such as maxing out the limit, missing payments, and only paying minimum payments can and will damage the primary account holder’s credit. Luckily, if negative behaviour with the account does occur, the authorized user can have their name removed from the account.
The pros and cons of adding an authorized user to your credit card account
Primary cardholders can benefit from adding a secondary user to their account if they have a card which offers a great rewards program. Having an authorized user can help account holders build up more rewards points and perks, such as Air Miles, or cash back on groceries. Also, since all the spending and activity on the account is consolidated into one account, this can make it easier for account holders to manage and track their spending and manage budgets, as opposed to using multiple different accounts, which could easily get disorganized and chaotic. Also, if you have multiple different cards, you could potentially be incurring interest charges from numerous accounts, rather than just one account, which is a lot easier to manage and avoid interest charges or additional fees.
However, in addition to the possible negative consequences involved with poor credit card management, another drawback is the possibility of having to pay a higher annual credit card fee. In most cases, credit card companies will charge you for the extra account if the primary card has a fee.
Also, depending on the nature of your relationship with the secondary user, and their previous behaviour with spending and using credit cards, it’s important to be cautious when adding that individual to your credit card account, especially since the primary cardholder holds the most liability in this scenario. It’s also critical to ensure that there is a strong, possibly written agreement, between both parties involved on the terms of payment, usage, and how you’d go about rectifying any negative situations that might arise with the account.
Ultimately, whether you decide to add an authorized user, or not, it’s important to consider all the benefits and risks involved in the decision, and ensure that this will be a benefit for both the primary and secondary user in the long-run.