Assessing whom to add as an authorized user
What do a relative in need, a kid going off to college and the person who makes your heart skip a beat all have in common?
They’re all people you might consider giving access to your credit card as an authorized user.
But before you take that step you should understand all the possible consequences.
Unlike a joint account owner, an authorized user is not legally liable for the balance due on the account.
So, if the account goes over the limit or the interest rate suddenly skyrockets, the authorized user won’t feel the pinch in his wallet.
That’s why you need to take a would-be authorized user’s level of responsibility into account before adding them to your credit card.
Even if you’re considering adding your spouse or college kid.
Before authorizing a user, ask yourself these questions:
- Can I trust the person to be responsible in using a card?
- Have they been trusted in the past by credit companies yet have outstanding balances?
- Can I trust that they understand the limits and boundaries of the card? For example, if you say the card is only to be used for school supplies or in an emergency, will charges for pizzas and movie tickets suddenly appear on the statement?
Now it’s time to determine why you’re going to add an authorized user.
Is it to help boost the person’s credit score or establish credit? If so, becoming an authorized user might not help.
VantageScore, the model jointly developed by all three major credit bureaus, doesn’t always include the experiences of an authorized user when factoring a credit score; the more widely used FICO does.
And even if it is factored into the credit score, the authorized user won't likely earn a score as high as the account holder, who presumably has years of solid credit history built up.
So a recent college grad with no credit still might not have a great credit score if you add them to your credit card.
What an authorized user might have is credit history.
That’s because authorized users accounts are included in credit reports.
So a potential lender can see the authorized user had a card in his or her name. They just might not get the benefit of having all those on-time payments being factored into their credit experience (which can raise or lower their credit score).
Because authorized users can tap into your available credit and then leave you holding a heavy financial bag, it’s smart to limit your exposure if you decide to give someone access to your account.
And the best way to do that is by lowering your credit limit. That way you’re able to minimize the potential financial damage and establish trust with the authorized user.
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