Some people give keys to their homes to trusted friends and family members. Doing so makes it convenient for others to come and go, but it carries the risk that the keys could fall into the wrong hands — or that the owner’s trust was misplaced.
Likewise, adding an authorized user to your credit card account can be incredibly convenient, but also a major liability.
What Is an Authorized User?
An authorized user is someone who holds a card in his or her name, but is not a primary or joint account holder. This cardholder can use the card to make purchases, but has no obligation to make payments. Unlike a primary or joint account holder, an authorized user cannot do anything more than use the card to spend money. He or she cannot report a card lost or stolen, close an account or add other authorized users.
Advantages of Adding an Authorized User
Convenience. If you frequently ask a spouse, family member or employee to make purchases on your behalf, making that person an authorized user on your account can be convenient for everyone. In this way, credit card users can eliminate the hassle of providing cash beforehand or reimbursements afterward.
Helping credit histories. Authorized users will have this account added to their credit histories. That means that someone who is trying to build improve his or her credit scores can benefit by becoming an authorized user on an account that is regularly paid. Parents sometimes add teens or college students who can’t qualify for credit on their own as authorized users.
Rewards. The money spent by an authorized user can earn rewards for the primary or joint account holders. Further, some rewards cards offer bonuses for adding authorized users. For example, the Chase Sapphire Preferred card (which was named the Best Airline Miles Credit Card in America) currently offers a sign-up bonus of 40,000 points, plus an additional 5,000 when new applicants add an authorized user who makes purchase within three months of opening the account.
Liabilities of Adding an Authorized User
You are on the hook for the someone else’s spending. It is great to be an authorized user as you can charge anything without having to pay the bills. On the other hand, the primary or joint account holders are completely responsible for repayment. So if you do add someone as an authorized user, it should be someone you completely trust. Whether or not all of their purchases with your card are made with your permission, you will be completely responsible for repayment.
Hurting credit histories. Just as a strong payment record will be reflected on the credit report of the authorized user, those who miss payments will hurt the credit of their authorized users.
Limited access. The limitations of an authorized user may be a disadvantage to spouses or partners who manage their finances jointly. Because an authorized user can’t make necessary changes to an account, a joint account might be preferable to those who are looking for equal access. Unlike authorized users, joint account holders can both order new cards, request credit limit increases or even add other authorized users. On the other hand, some card issuers do not offer joint accounts or do not allow joint account holders to be added to existing accounts.
Additional costs. Most credit cards will allow cardholders to add authorized users at no additional charge, but some high-end rewards cards charge a fee for each additional cardholder. For example, the American Express Platinum card charges a $175 annual fee for each additional cardholder.
The ability to add an authorized cardholder is a nice benefit to have, but it is not without risk. By understanding the advantages and liabilities, cardholders can more wisely consider granting another person access to their line of credit.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
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