What are the Benefits and Consequences of Being an Authorized User on a Credit Card?

What is an authorized user?

An authorized user is someone who has been “authorized” to use a credit card that is in someone else’s name.  For example, parents will sometimes add their children as an authorized user to help build their child’s credit or use while they are away at college.

Benefits

Establish or improve your credit score

For an authorized user without credit, being added as an authorized user to an existing credit card account that has an impeccable pay record, may help establish or improve credit fairly quickly since the credit card holder will likely report the debt on your credit report.  To get this benefit, it is important that you confirm with the credit card provider that they will report the pay history data of the credit card account to the credit report agencies for the authorized user and that that the credit card owner does, if fact, have an impeccable pay history.  NOTE:  Authorized user status has a smaller impact on credit scores than it had many years.

You are NOT legally responsible for the debt

As an authorized user, you will not be held liable for the debt, regardless of how many times you use the credit card.

Learn how to handle credit responsibly

Using a credit card as an authorized user can teach you how to manage debt responsibly in a low-risk way, if you always remember that the money you are spending is not yours and that someone else, usually your parent, is responsible to pay back the money you just spent.

Convenience and Safety

Having access to plastic rather than cash is more convenient and safer.  If a credit card is lost, you can report it to the credit card holder and usually not be responsible for any unauthorized charges and a new card can be issued fairly quickly.  If you lose cash, you are highly likely never to see that money again.

Consequences

Decrease your credit score

There are two ways being an authorized user may decrease your credit score.  First, if the credit card owner has not timely paid the credit card, then having the credit card added to your credit report as an authorized user can be a detriment since that negative pay history may be reported on your credit report.  The second way your score may be decreased is if the credit card is kept at its’ maximum limit and never or rarely paid down.

Control and Relationship Issues

As an authorized user, sometimes a credit card owner may use the authorized user relationship to control your actions (i.e., if you don’t XYZ then I will cut you off as an authorized user on my credit card).  You may feel a sense of obligation to the credit card owner for being there when you needed funds and feel an obligation to do whatever they want done.  Also, if you are not using the credit card responsibly, the credit card owner may begin to have resentment toward you and treat you differently than before which can cause permanent damage to your relationship with them.

Advice for Credit Card Owners

If you are considering adding an authorized user to your credit card, make sure you set parameters of how and when the credit card can be used.  Can you imagine giving your child access to use your credit cards when needed?  For some college students, everything is a need and determining the difference between a need and a want can prove to be quite challenging.  Remember, as the owner, you are the one legally responsible for the debt and making the payment.

At Bond & Botes, we are attorneys providing financial solutions.  If your credit score has been negatively impacted as an authorized user or credit card owner, give your local Bond & Botes office a call today to setup a free consultation to learn how you can get out of debt and receive a fresh start.