5 steps to take when adding an authorized user to your card
By Allie Johnson
October 8, 2014
Thinking of adding your spouse, kid or employee to your credit card as an authorized user to help boost their credit rating? As advantageous as it can be for them, there are some very good reasons for you to hesitate.
Card issuers typically allow a primary account holder to add an authorized user to the account, who then can get a card with his or her name on it.
But the primary cardholder, not the authorized user, is ultimately responsible for paying the bill. “That's why it can be so dangerous,” says Rod Griffin, director of public education for Experian. That means negative credit history only goes on the primary cardholder's credit report, while positive history is reflected on both cardholders' reports. This differs from a joint account, in which both cardholders are responsible financially, and both positive and negative history goes on each person's reports.
So, why do some people add authorized users to their accounts or agree to be added? Here are the primary reasons:
- Convenience. Adding a spouse as an authorized user can make life easier, especially when you want to use one spouse's card to buy certain types household items — say groceries or gas, says credit card expert Beverly Harzog. She says: “You might not always be together when you're making purchases in that category.” So, she says, adding your spouse to the card can make it easier to manage your money.
- Greater rewards. Some issuers give you extra points or miles for adding an authorized user to a new account, according to The Points Guy. For example, one card offers a sign-up bonus of 40,000 points when you spend $3,000 in the first three months, and will give you an additional 5,000 points for adding an authorized user. But don't add an authorized user just for that bonus, Harzog says, “only add an authorized user if you've got a good reason.”
- Help to run your business. Need to send an employee out for coffee, doughnuts or printer ink? Some bosses — especially entrepreneurs with small businesses — add one or more employees as authorized users. But that can be risky. “If I were a small business owner, that would make me very nervous,” Griffin says. He recommends exploring alternatives, such as reimbursing employees for items purchased on their own cards.
- Access to a credit card. If a family member can't get an account on his own — maybe because he's under 21 or has shaky credit — being an authorized user is a way to get the benefits of having a card. Some parents might want their kid to have a card in his wallet for emergencies, Griffin says.
- A way to build credit. If you have no credit history, being adding to someone else's account as an authorized user will get a credit file started for you, Griffin says. “That's the first step toward building a positive credit history,” he says. And as long as the account is used responsibly, it will boost the authorized user's credit, Harzog says. Be warned: While negative information, such as late payments, isn't supposed to go on the authorized user's credit report, it does happen. If you become an authorized user, check your credit report for free at AnnualCreditReport.com to ensure that negative information isn't recorded. If the primary account owner is not handling the account properly, you need to ask to be removed from the account as soon as possible.
Use caution with authorized users
If you're considering adding an authorized user, protect yourself with these five steps:
- Learn how it works. Before you add an authorized user, learn your card company's rules and procedures for authorized users, Harzog says. For example, how do you remove an authorized user? And how would the authorized user remove himself from the card?
- Set parameters. Tell the user when he's allowed to use the account, what he can buy and how much he can spend, Harzog recommends. And if you expect the user to reimburse you for his purchases, discuss how that will happen, Harzog says. But, she adds: “Even if you make an agreement that they will pay for what they charge, legally they don't have to.”
- Use it as a teaching tool. Adding a young adult child as an authorized user on an account can be a good way to teach responsible management of credit, Griffin says. Parents should be very clear in setting rules of use, monitor the child's use of the card and go over the statement with the child at the end of each month, he says. “Make sure they know it's not free money, and the risk you're taking as a parent by adding them to the account,” he says.
- Check the account frequently. Look at your account online several times a week, Harzog recommends. Set text or email alerts to let you know immediately when the authorized user makes a purchase over a certain amount. Or, some issuers allow you to set a limit on how much the authorized user can charge. “You can trust, but verify,” she says.
- Make sure the bill gets paid. And finally, make sure you — not the authorized user — pay the bill each month because it's your credit at stake.
If you decide to have an authorized user, guard your card carefully. “It's your card, your account history and your credit,” Harzog says.