Authorized Users: The Pros and Cons

Authorized users are people you can trust to use your card to build or restore their credit history. Authorized users can get credit without having to apply for a credit card. Your on-time payments will appear on their credit report as long as they use a credit card that reports to the credit bureaus.

Gerri Detweiler is a credit expert and the author of six credit books, including The Ultimate Credit Handbook. If the primary cardholder is a responsible payer and has low debt, this can be a huge benefit.

Both parties have pros and cons to adding an authorized account user. Before proceeding, learn more about the benefits and risks.

What is an authorized user?

Authorized users have permission to use someone else's card for purchases, but are not responsible for the card payment. Authorized users are usually family members or friends who have been trusted. According to Chase, there is no legal minimum age for authorized users, but the banks can set their own policy.

Payment arrangements are usually made between the cardholder and authorized user. Authorized users are considered secondary cardholders with account access but not ownership.

If the account is well managed, authorized user status can be used to establish credit. Authorized user status can help build credit by reporting the full payment history to three major bureaus. The opposite is also true. Failure to responsibly use the card by the cardholder or authorized user can lower both credit scores.

What is the difference between an authorized user and a joint cardholder?

Authorized users have spending privileges but are not legally responsible for any balance. Joint cardholders, on the other hand, must apply together for credit and they both share the legal responsibility for the card.

The card issuers do credit checks for applicants to joint accounts but not authorized users. In general, the primary cardholder will only need to contact the issuer via phone or online in order to add an authorized account user.

Financial problems of one person could affect approval for a jointly issued credit card. A person with a low credit score may be able to take advantage of someone else with a high credit score in order to get a better rate and higher credit limit on a credit card.

Even if only one cardholder pays the bill, both cardholders are responsible for managing their cards. Both cardholders' credit scores can be affected if one cardholder misses payments or accumulates a large balance. Credit mistakes made by an authorized cardholder or primary cardholder may also affect the credit scores of both individuals.

What Happens When You Add an Authorized User To A Credit Card?

If the primary cardholder manages the account well, the authorized user can build or restore their credit. Authorized users can access the credit line of the primary cardholder without having to undergo a credit check. They may also receive their own credit cards.

It is not a simple task to add a second user. There are pros and cons.

Pros:

Earn more rewards for purchases made by authorized users.

Cons:

Both the credit scores of the authorized user and the primary cardholder may be affected if either mismanages an account.

A primary cardholder may add someone to their account in order to share access or build credit. A parent may add a teenager as an authorized user so that the teen can learn to make wise financial decisions before opening their own card.

Detweiler states, "I added my 16-year-old daughter as an authorized card user when she started driving and turned 16. She is now in college with an excellent credit rating."

An authorized user can add positive payment history to an account that is old and rarely used. This will prevent the closure of the account. When an issuer cancels a credit card, your credit score may drop.

A third reason to add a user to a good-standing account is to help someone get out of a bad credit situation.

Ed Mierzwinski is the senior director for the federal consumer program of the U.S. Public Interest Research Group (PIRG).

Poor credit can be caused by a variety of factors, including medical debt and job loss.

Piggybacking is the process of adding an authorized user into an account in order to establish or increase the credit score. Paid piggybacking can be costly and is considered a short-term solution to improve credit scores.

What are the risks and rewards of becoming an authorized user?

You can build credit faster by becoming an authorized cardholder if the cardholder is responsible and has good credit. You will have to verify that the card issuer is reporting authorized user activity to credit agencies. Card activity will not affect your credit if the card issuer doesn't.

Both the account holder as well as the authorized user of the card must use it wisely. Both your credit scores may be affected if you both miss payments or accumulate a large amount of debt.

You can ask someone you know to add you as a trusted authorized user. Experian says that an authorized user will most benefit from a account:

A low credit usage ratio is preferred, which should be below 30%.

You can ask the cardholder to remove you from the list of authorized users if they are making mistakes which damage your credit. Or you can call the card issuer directly and request the change. You may see a slight drop in your credit score when you're removed as an authorized cardholder, but over time you can increase it by responsibly using your own accounts.

Can an authorized user hurt your credit?

It can be dangerous to give someone a card if they would not qualify otherwise. It's important to consider the risks involved in adding a user to your credit card. You should consider:

If the arrangement does not go well, it can strain personal relationships.

Mierzwinski explains that when you add an authorized account user, you're asking them to manage credit responsibly. He says that if they break their promise, you may have a difficult time, because the bad credit will appear on your credit file.

You can be pushed closer to your limit by a large amount of debt. Your credit score can drop if you are close to your limit.

Mierzwinski explains that as long as you pay your credit cards on time, and stay below 30% of the limit, it's a good thing. "But if your limit is maxed, then that's a bad thing."

The primary cardholder must cover the debt if the authorized user is in a bad financial situation and cannot pay their portion of the bill. If you can't, you may damage your credit.

Mierzwinski: "If the cardholder has negative items, such as delinquencies of 30, 60, 90 days or more than that, then they are hurt."

These issues can cause tension in your relationship with an authorized user.

Mierzwinski warns that "it could blow up" if two cardholders end up in a dispute. You have to be confident in your decision.

How to add an authorized user on a credit card

By calling the card issuer, or by logging in to the account online, the primary cardholder may add an authorized user. The requirements vary from issuer to issuer, but they may require the name, address and birthdate of the authorized user as well as their Social Security number.

Keep these guidelines in mind as you move forward:

Remove users that aren't exercising.

If the authorized user is of legal age and meets other conditions, the issuer will provide a credit card that's linked to your account. The credit card company will determine the number of authorized users that you can add.

You may be able set a limit on the spending of the authorized user if the card issuer permits it. Mierzwinski advises that you should carefully monitor your card usage to ensure it does not exceed the credit limit.

If you don't do this, your credit score will likely decline, says the expert.

If your credit limit doesn't increase automatically after adding an authorized user to your card, you might ask your issuer to do so. This will give you both more money to spend.

You don't have to give an authorized user a card. As long as the primary cardholder practices responsible credit, an authorized user can improve or build credit.

How can you remove an authorized user?

The primary cardholder may remove authorized users from their account at any time by contacting the card issuer. You should be able remove users by phone or on the internet, just as you can add an authorized user.

Ask your card issuer to send you a new one if the person has your card details.

After the authorized user has been removed, they can no longer spend money on your account. Avoid removing an authorized user abruptly from an account. This can cause problems with family or friends. Instead, try to resolve the problem.

Ethan Dornhelm is the vice president of FICO and predictive analytics. He says that removing the authorized cardholder will not affect the credit score.

He says that the fact that authorized users are on your card does not appear in your credit report.

The effect on authorized users can be even more dramatic, as the account history and activity will disappear from credit reports.

Dornhelm says that the authorized user's credit score may drop slightly if a card which is "a shining example of careful debt-management" is removed from his or her file. If the authorized account balances are relatively high, being removed from the card as an authorized users could have a moderately positive impact on the FICO score of that person.