Let’s begin with a definition of an authorized user. An authorized user can use the credit card, but has no responsibility for paying it. Even though the card is issued in the authorized user’s name, not just the responsible party’s name, the authorized user is not responsible. The credit card’s current and past payment history are reported on the credit reports of both the person responsible for the card and the authorized user. The key reason a cardholder would request to add someone to their credit card as an authorized user is a parent of a teenager or college student to help them build credit.
Advantages
With this in mind, there are both pros and cons to authorized user accounts. Let’s begin with the advantages. The authorized user is not responsible for paying the bill and can take advantage of the credit that has already been established by the cardholder. It can give them an opportunity to have a credit card with history, which will make it easier to obtain credit under their name, that is, if the responsible party has excellent credit.
Disadvantages
If the primary cardholder already has a poor history on the subject credit card that will also show up on the authorized user’s credit reports. In this situation, there is no need to add them as an authorized user. If the cardholder’s financial situation changes to the negative, and they cannot pay their card on time, this impacts the authorized user’s account. In this situation, the authorized user should request to be removed from the credit card. They will be left with historical poor credit, which will impact them for about two years.
If you are the responsible party and considering adding someone as the authorized user, you need to consider that you are responsible for the purchases made on the card by the authorized user. You may want to consider adding them as an authorized user, but not letting them take possession of the card. That way you don’t have to worry about paying for what they charge.
If you are already an authorized user or considering being one, you need to be aware of the responsible party’s credit. Their credit directly impacts yours.
A card issued to an authorized user is a gamble to both the responsible party and the authorized user. There aren’t many options for someone under 21 with very little income. A secured card can be an option. Credit unions are more willing to work with their members on this issue than banks.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here.