Being an authorized user on a credit card can be a smart move for many reasons. While the primary cardholder is responsible for all charges and payments, the authorized user can still enjoy perks like shared credit limits, rewards such as cashback or travel points, and other benefits.
That said, it’s important to understand what it means to be on someone else’s account, including the advantages and potential risks. In this article, we’ll explore when it makes sense to take this step, the pros and cons, and answer common questions you might have.
Money matters—but so does happiness. Browse these amazing opportunities on The Muse and find the perfect fit for you »
What is an authorized user on a credit card?
A credit card authorized user is someone added to another person's credit card account, so that they can use the card to make purchases. It's a straightforward process; the primary cardholder just needs to contact their credit card issuer and request the addition. The authorized user gets their own card with their name on it, but it's linked to the primary account.
According to the Consumer Financial Protection Bureau (CFPB), an authorized user is not legally responsible for paying the credit card bill but can benefit from the primary cardholder’s credit history to help improve their own credit score.
Does being an authorized user on a credit card affect your credit score?
Yes, being an authorized user on a credit card can affect your credit score. When you're added as an authorized user, the account history of that credit card may be included in your credit report. This can impact your credit score positively or negatively, depending on how the primary cardholder manages the account.
How it can boost your credit score
Being an authorized user can help you build credit, especially if you have little or no credit history. When the primary cardholder makes on-time payments and keeps the credit utilization low, this positive behavior is typically reflected in your credit report as well.
Over time, this can help you establish a good credit history, which is crucial for getting approved for loans, mortgages, or even better credit cards in the future. It’s a simple way to start building credit without having to open a new account in your own name.
How it can hurt your credit score
While being an authorized user can help build your credit, it can also hurt your credit score if the primary cardholder mismanages the account. If the primary cardholder misses payments, carries a high balance, or maxes out the credit limit, those negative actions can be reported on your credit report as well.
This could lower your credit score, making it more difficult to obtain credit on your own in the future. Additionally, if the account is closed or the credit limit is reduced, it could negatively impact your credit utilization ratio, further harming your score.
Pros and cons of being an authorized user on a credit card
Explore the benefits and potential drawbacks of being an authorized user, and decide if it's the right choice for you.
Pros
- Credit building: Being an authorized user can help build or improve your credit score by adding positive payment history from the primary cardholder’s account to your own credit report, as long as the account is in good standing.
- Access to credit: Authorized users gain access to the credit limit of the primary cardholder, which can be useful for managing expenses.
- Rewards and perks: Authorized users can also enjoy the rewards and perks associated with the credit card, such as cashback, travel points, and purchase protections.
Cons
- Credit score impact: If the primary cardholder fails to make timely payments, it can negatively affect the authorized user’s credit score.
- Spending disagreements: The authorized user’s spending can put financial pressure on the primary cardholder, leading to tension or conflict if overspending happens.
- Limited financial responsibility: While authorized users can benefit from credit-building, they do not gain the full financial responsibility and management skills that come with having their own credit card account.
Is being an authorized user the right move for you?
Before becoming an authorized user on a credit card, weigh the risks, such as the potential impact on your credit score if the primary cardholder overspends or misses payments. Clear communication with the primary cardholder is essential to ensure a positive experience for both parties.
For further information on how being an authorized user can affect your credit score and overall financial health, you can check out the educational resources provided by the Federal Reserve. These resources are designed to help consumers, including authorized users, make informed decisions about credit card usage and manage their finances responsibly. The available guides, tips, and explanations of credit card regulations and consumer rights make it a valuable tool for anyone looking to understand and improve their credit habits.
FAQs
What happens if you are an authorized user on a credit card?
As an authorized user on a credit card, you can make purchases with the credit card, but you are not legally responsible for the payments. The account's activity can also impact your credit score—for better or worse.
Am I responsible for the debt if I am an authorized user on a credit card?
No, the primary cardholder is responsible for all the debt incurred on the account. According to the Consumer Financial Protection Bureau (CFPB), an authorized user is not legally responsible for paying the credit card bill.
Do authorized users get bad credit?
Authorized users can get bad credit if the primary cardholder fails to manage the account responsibly, leading to missed payments or high credit utilization.
Does it hurt your credit to be removed as an authorized user?
Being removed as an authorized user on a credit card typically does not hurt your credit, but the positive credit history associated with the account will no longer be reflected on your credit report.