Adding a friend or family member as an authorized user on your credit card can be a great way to help them build credit of their own. But if you aren't careful, your good deed could end up wreaking havoc on your own credit score -- and on your relationship with the authorized user, too. Here are a few things you should know before you hand over access to your credit card.
How authorized user status works
When someone is an authorized user on your card, it means they have permission to use your credit card as if it were their own. However, the difference is that they're not legally responsible for repaying any of the money they spend. That still falls on you.
Being an authorized user is not the same as being a joint account holder. Joint account holders share responsibility for the card, and both parties are entitled to make changes to the account, like using rewards or requesting a credit limit increase. Authorized users do not have these rights.
Parents often make their children authorized users on their credit cards as a way to help them build up a credit history of their own. Usually, there are few requirements you must meet in order to qualify as an authorized user, and no credit check is necessary. Joint account holders, on the other hand, usually must be able to qualify for the credit card on their own in order to be approved.
As long as you make the payments on time, your authorized user's credit score will benefit. Your credit score will not be hurt just because you take on an authorized user, but it can be hurt indirectly if they run up a bunch of charges that the two of you are unable to pay back. That could set you on the road toward unmanageable credit card debt, and any late payments will hurt both yours and your authorized user's credit score.
Things to consider before adding an authorized user
The most important question to ask yourself before adding an authorized user to your credit card is whether you trust them to use the card responsibly. If not, don't do it, or you'll end up putting your own credit score at risk. It's important to sit down with them and discuss any rules or concerns you have about their use of the credit card and make sure you have a plan for how they will pay back the amount they owe you. It's a good idea to get this in writing so that both of you can refer back to it at a later date.
Second, you must make sure your credit card issuer reports authorized-user status to the credit bureaus. Most of them do, but not all of them. If your card doesn't report the account on your authorized user's credit report, then it won't help them build credit at all.
If you decide to move forward, you can add an authorized user through your online credit card account or by contacting the company by phone. The card issuer will send an additional credit card for the authorized user. There's usually a one-time additional card fee of around $30 associated with this.
You can remove the authorized user at any point by contacting the card issuer and requesting that their status be revoked. You should also notify your authorized user of your intent to take them off of the account.
If both of you are responsible with the credit card, your credit will remain high, and your authorized user's will improve. But if they're irresponsible, they can drag you down with them, so think long and hard before you give them access to your credit card.
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