Editorial Policy

Share your card with an authorized user, not a co-signer

Erica Sandberg

October 23, 2014

QHi Erica,

You hear that making someone an authorized user is better than making someone a co-owner on a credit card, but I'm wondering why. What is the difference, and why is having someone as an authorized user better? –Nancey

ADear Nancey,

There is considerable difference between authorized users and co-signers!

A credit card that you applied for is your personal property. The lender granted it to you based on your credit history and financial circumstances, and it is up to you to manage it according to the terms of the original contract.
Ask Erica

One of the features the account may have is the ability to add people as authorized users. As guests, they would have your permission to enjoy access to your account. At your request, the issuer will send the people you choose a credit card with their name on it. Once they have it, they're free to charge. They are not responsible for payment, however. Because the company did not pull their credit reports and check income as approval factors, the account is not co-owned by them. It's yours, from start to finish.

What is merged is credit history. The moment another person has access to your credit card account, it shows up on not just your consumer credit file, but on theirs as well. When the balance is kept well below the credit line (30 percent of the limit is ideal for FICO scoring purposes, the score most lenders use to assess your creditworthiness) and the payments always arrive on time, both you as the owner and they as authorized users reap the increased rating benefits. This is a popular method for parents trying to help their young adult children build credit.

If the account isn't managed well (debt escalates and payments falter), the primary cardholder's credit report is affected, but typically not the authorized user's account — at least in theory. It's important everyone check their credit reports at AnnualCreditReport.com to make sure negative information is not being reported.

On a positive note, either party can revoke authorized user status at any time. You don't need to pay off the card or obtain the other cardholder's permission to cease access.

How does this differ from jointly held accounts? Shared liability. The issuer grants the credit line based on the information of multiple applicants. One person may have poor or no credit, but the other has an excellent credit rating, so the issuer grants the line because it feels sure that at least one person is responsible. Or people of similar credit ratings might simply apply together.

When several people are listed as owners for a single credit card account, the issuer can expect payment from any of them. And if the account goes into default, all of the owners can be named in a lawsuit.

Want out of the deal? Good luck. It is usually difficult to kick a legitimate owner from the account (or to be removed yourself). To do so, the issuer would usually require that any remaining balance is paid off entirely, then, the account is closed and reopened in an individual's name.

In fact, the only real similarity between authorized user and jointly held accounts is that positive information shows up on both account types. Negative information only shows up on jointly held accounts. That means that co-owned cards only work favorably when all of the cardholders are committed to keeping the account in excellent shape. Trust and communication are necessary.

If I had to choose between the two, I would select an authorized user arrangement over multiple partner accounts because of the ease in which the owner can resume total control. But, the very best option is to open a personal account and don't share it with anyone. As you can see, too many people charging with a solitary account is inherently messy.

The good news is that almost anyone with a job can qualify for an individually held credit card. Even if you have bad or unestablished credit, secured credit cards are usually within reach. With this type of account, you give, say $300, to the card issuer as collateral, then you can charge up to $300 — without having to rely on someone else or risk relationship damage. If you close the secured card account, the $300 is returned to you once the bill is paid off.

Just remember, the best thing you can do for your credit is to pay off your card in full and on time each month. And if you choose a secured card, make sure the card issuer will report the account to the three major credit bureaus, TransUnion, Experian and Equifax, so that your responsible account management shows up on your credit reports.

Got a question for Erica? Send her an email.