Credit Card Authorized Users—How to Avoid Getting Burned
Know the potential risks for adding an authorized user to your credit card, or being added as one on someone else’s card.
You’ve probably heard about the dangers of co-signing for a credit card with a joint user and getting stuck with a big bill that you didn’t expect. Fortunately, you can choose a card relationship that comes with less risk: having or being an authorized user.
Problem is, it also comes with potential financial dangers and credit consequences for both the card owner and the authorized user. I’ll explain what an authorized user is and give tips for both parties to protect your finances and credit.
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What Is a Credit Card Authorized User?
A credit card authorized user is someone a card owner adds to his or her account. The user has permission to have a card in their name and to make charges. Unlike with a joint account owner, an authorized user is not responsible for repayment of any amount of debt on the account.
That means if you’re only an authorized user on your ex-girlfriend’s account, you’re not responsible for any amount of debt on the card. However, marriage can complicate the issue, depending on where you live.
In community property states, creditors can go after both spouses for debt incurred by either of you after marriage, no matter if you’re a joint owner or an authorized user. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is an opt-in state that gives both spouses the option to make their property community property.
A common situation for adding a partner or spouse as an authorized user is when one has good credit, but the other one doesn’t and can’t qualify for a credit card. You could get a card that’s in your name and add him or her to your account as an authorized user.
Another good reason to add a user is when you have a teenager or a college student who is still a dependent. The young person receives a card to use for planned purchases or to stay safe during unexpected emergencies, like car trouble or being caught without enough cash far away from home.
See also: Watch Out for These 10 Credit Card Pitfalls
Whenever you have an authorized user on your credit card, the account information and activity shows up on both of your credit reports.
How an Authorized User Affects a Card Owner’ Credit
While it seems simple for an account owner to give a credit card to an authorized user, like a child or spouse, how it affects both of your credit reports is where things can get a little confusing.
Whenever you have an authorized user on your credit card, the account information and activity shows up on both of your credit reports. If you’ve had a card for a while and add a user, your entire account history doesn’t get reported on their credit, just the activity that occurs after you add him or her to your account.
If an authorized user has a bad credit history—such as a bankruptcy, accounts in collection, or late payments—it won’t affect your credit in any way. The credit histories of a card owner and an authorized user are completely separate. The only change will be the addition of the authorized user credit card account to his or her credit history.
As I mentioned, if you’re the cardholder, you typically bear all the responsibility of paying the account. It doesn’t matter if the authorized user goes on a huge spending spree that you didn’t agree to. In most cases, you’ll be on the hook for 100% of the bill.
Having unexpected charges on your account could really hurt your finances and credit, especially if you can’t afford to pay the bill on time or if new charges cause your credit utilization to suddenly go through the roof.
One tip for card owners is to regulate the credit limit for an authorized user. A nifty feature of most cards is that you can assign a limit for an authorized user that’s less than your own.
For instance, if you have a $10,000 credit limit, you could add your college-bound son as an authorized user with a $500 credit limit. You’re in charge and can increase or decrease the limit any way you like. If the user doesn’t follow your rules for using the card you can simply drop them from the account at any time.
Again, the main risk you face as a cardholder with an authorized user is that the user will abuse the privilege and make charges that you can’t afford, which could hurt your credit.
See also: How Many Credit Cards Should You Have for Good Credit?
Positive information, like on-time payments, gets reported to each of your cedit reports. That’s why being an authorized user is a smart strategy to build credit.
How a Card Owner Affects an Authorized User’s Credit
Now let’s discuss the flip side, which is how the behavior of a card owner affects you when you’re an authorized user.
As I mentioned, the card’s account activity shows up on your credit report—as long as the card company reports it to the credit bureaus. That could be a dream come true or a nightmare, depending on how responsible the card owner is.
I say “typically” because your credit report shows that you’re an authorized user and not an account owner. In some cases, creditors may give the account less weight, or none at all, because they know that you may not responsible for the debt on that account. Nonetheless, it can still be a great first step in establishing a credit history and building credit so you can eventually qualify for your own accounts.
Likewise, irresponsible behavior that hurts a card owner’s credit generally also hurts an authorized user’s credit. However, one of the major credit bureaus, Experian, says they don’t allow negative information to be reported on an authorized user’s account.
So, whether being an authorized user can help you build credit depends on:
- Whether the credit card company reports account information to the credit bureaus in the name of authorized users;
- Whether a creditor or the credit scoring model used factors in account information for authorized users; and
- Whether the card owner shows responsible use of the account.
How to Remove Your Name as an Authorized User
What’s really important to understand is that if a card owner starts paying late or maxing out the account, you can take steps to protect your credit, even as an authorized user. Never allow a cardholder’s negative history to also drag down your credit.
One way to protect yourself is to contact the cardholder or the credit card company and ask to be removed as a user on the account. Unless you’re married and live in a community property state, creditors will typically remove you if you request it.
Another way is to remove the user account from your credit report by disputing it with each of the credit bureaus that reports it. Again, state law and your relationship with the card owner will come into play. But an authorized user account with negative information it could disappear from your credit files in 30 to 60 days.
See also: 6 Ways to Pay Off Credit Card Debt
How Authorized Users Should Monitor Accounts
As you can guess, knowing whether a card owner is managing his or her account responsibly is completely up to you. So how do you do it? Simply watch your own credit reports carefully for red flags, such as late payments and high balances. Anything negative related to that account will hurt your credit if you don’t take action.
Of course, you should review your credit reports on a regular basis, even if you’re not an authorized user! You can get a free report every 12 months from each of the 3 nationwide credit bureaus (Experian, Equifax, and TransUnion) at AnnualCreditReport.com.
You can also get at least one your credit reports and scores for free from the following sites:
Having an authorized user on your credit card is a great way to give someone access to your credit line for everyday purchases or just unforeseen emergencies. It also allows you to teach someone, like a teen, about how to use a credit card responsibly.
Simply watch your own credit reports carefully for red flags, such as late payments and high balances.
You’ll be able to see when, where, and how much a user spends by viewing transactions online or reviewing your monthly statement. If both parties manage their cards responsibly, having or being an authorized user can be a smart and beneficial financial relationship.
If you’re ready for help managing debt, building credit, and reaching big financial goals, check out Laura’s private Facebook Group, Dominate Your Debt! Request an invitation to join this growing community of like-minded people who want to take their financial lives to the next level.
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
