Becoming an authorized credit card user offers students, teenagers and the unemployed a useful way to build their own credit while being supported by the strong credit of someone else. Potential authorized users should reach out to a responsible friend or family member who is willing to provide financial help. Finding someone financially responsible with good credit is most important; an authorized user’s credit standing will be impacted by the primary cardholder’s payment habits and credit utilization.
Here’s the need-to-know about adding an authorized user, plus the pros and cons of doing so.
Authorized User, Defined
An authorized user has access, via their own separate credit card, to someone else’s credit card account with approval from the credit cardholder and card issuer.
For the Authorized User
Most credit card companies report an authorized user’s credit activity to the three major credit bureaus in the U.S. (Transunion, Experian and Equifax). Positive account activity like on-time payments and low credit utilization will benefit an authorized user’s credit, as long as it’s reported. If it’s not, it’s not possible for an authorized user to reap the benefits of the primary cardholder’s good credit standing. It’s always good practice to double-check with the card issuer: Call the number on the back of the card or read terms on the website.
For the Primary Cardholder
Adding an authorized user can keep an old credit card account active, especially when the activity is positive. The primary cardholder can increase their own credit score if the authorized user practices responsible spending habits. This includes maintaining a spending plan and paying the balance on both cards every month—the benefit for the primary cardholder is only reaped if the card company sees responsible activity. Signing an authorized user can also be a helpful thing to do for a friend or family member who is in a sticky financial situation.
Reasons to Be Cautious
For the Authorized User
An authorized user’s credit will be impacted by an account they are an authorized user on. The primary cardholder should always make payments on time and only use a portion of available credit across all accounts. While these factors can benefit an authorized user trying to build good credit, they can also hurt a credit score. If the primary cardholder has poor standing or never makes a payment, both primary cardholder and authorized user will suffer decreased credit scores.
For the Cardholder
Because an authorized user has spending access to the primary cardholder’s account, accidental overspending can become a threat. Ultimately the primary cardholder remains liable for all charges made to both cards. If the authorized user fails to follow their spending plan, this could put undue financial pressure on the owner of the account. Their credit utilization rate can also increase if left unchecked, meaning a potential decrease in credit score. Adding an authorized user can test personal relationships if it doesn’t work out.
How to Add or Remove an Authorized User
The person who owns the account, known in the business as the “primary cardholder,” can add an authorized user by calling an issuer or by logging into an online account. Adding an authorized user to a credit card also offers a great way to keep rarely used accounts active.
Some credit card companies charge an annual fee for adding an authorized user. For example, the Citi Prestige card charges $75 per additional card member. We’ll say it again, like we always do: Read the card’s terms or call the issuer before doing anything.
A simple phone call to the issuer is all that’s needed to remove an authorized user. Typically, the cardholder can call the number on the back of their credit card to make that happen. The authorized user’s card will be deactivated and their name will be removed from the account.
Adding an authorized user to a credit card account has its benefits, specifically that both parties can increase credit scores with responsible spending habits. But overspending is an easy mistake to make, especially if it’s not caught early, so a primary cardholder should monitor account activity frequently to prevent any mishaps. No matter what, adding an authorized user to a credit card is a risk for both parties, but it’s a nice thing to do for a friend or family member who might be struggling financially. As should always be advice for those looking for a way out of a tricky spot: Consider all the options before making a decision.