Authorized Users

So what is an authorized user?

An authorized user is someone who is added to another person’s credit card account, which allows the authorized user most of the same rights as the account owner (primary card holder), such as cash back on spending and perks for cardholders. Typically, authorized users get a credit card similar to the primary account holder’s with their own name on it

What are the pros and cons?

Pros:

• Build credit: the main benefit that is typically associated with authorized users is that it allows them to build their credit by having their credit linked to that of the account owner. *This can be a double-edged sword because if the account owner has any issues with their credit, they will also appear on the authorized user’s credit report. For instance, it is not uncommon for a parent to have a balance on their card that is manageable for them, but massive for their child who is earning significantly less. Things like this can be a red flag for lenders, so it is important to consider the primary cardholder’s credit report when deciding on becoming/adding an authorized user.*

• Rewards spending/perks: many credit cards offer perks and/or rewards spending to users, such as cash back on when you use your credit card at certain businesses, free checked bags on certain airlines, etc. Many of these cards also come with an annual fee. In order to maximize the use of these benefits, some people add family or close friends as authorized users so that they can all maximize their use of benefits and rewards and split the annual fee. *Some companies charge a fee for authorized users, so it is important to read the fine print.*

• Convenience/emergencies: it is fairly common for parents to add their kids as authorized users so that their kids have a credit card with them at all times without the parents having to give up their cards. Often times, the parents have terms with their kids about what this card can and can’t be used for, such as gas or sending their kids to pick up groceries or takeout vs a mall trip.

Cons:

• Negatives on the primary account holder’s credit: if the account owner has any issues with their credit, they will also appear on the authorized user’s credit report. For instance, it is not uncommon for a parent to have a balance on their card that is manageable for them, but massive for their child who is earning significantly less. Things like this can be a red flag for lenders, so it is important to consider the primary cardholder’s credit report when deciding on becoming/adding an authorized user. These do, however, come off the authorized user’s credit report when they are removed as an authorized user.

• Being at the mercy of your authorized users: as almost every parent who has added their child as an authorized user can tell you, teenagers and college students almost always have a different definition of when it’s an acceptable time to spend their parent’s money. Many credit card companies allow you to set a limit on how much authorized users can charge to their card, but it is important to recognize that as the primary account holder, you’re responsible for the charges that authorized users put on the card, and it will affect your credit.

Bottom line, adding authorized users has its benefits and risks. It is important to recognize how much you trust the person who you will be sharing a credit card with because the actions of either party affects the other’s credit score. It is also important to read the fine print and become familiar with the terms when weighing the pros and cons.