Authorized User 101

What You Should Know Before Adding an Authorized User

Adding an authorized user to a credit card account is an easy way to give a child, spouse, or even an employee the freedom and convenience to use your personal or company credit card. The situation, however, is not without benefits and risks. The following are important facts that you should know before adding authorized users to your account.

How to Add Someone as an Authorized User:

In most cases, the process of adding authorized users is as simple as a phone call or going to the card issuer’s website. Removing authorized users can usually be handled the same way. While the primary cardholder has to request that someone be added as an authorized user, the authorized user can ask to be removed from the account.

Access:

Authorized users hava access to the full credit line on the account: however, they have no financial responsibility for repayment as far as the credit company is concerned. Authorized users also cannot request changes to the account, such as an increase in the credit line. Before agreeing to add someone as an authorized user, you should have an open conversation with them regarding the parameters and expectations for using the card.

Effect on Credit:

The account will reflect on the credit history of both the primary cardholder and the authorized user. This can help a child or spouse with poor credit or no credit history to establish or rebuild their credit. This can also be a double-edged sword in that that actions of either party can positivity or adversely affect the credit of the other.

Modeling Responsible Financial Behavior:

Adding your teenager as an authorized user is a valuable way to teach them the importance of financial responsibility. Not only can you demonstrate good financial habits, but you can create an informal arrangement with your child outlining their spending limit and a monthly repayment schedule. Most issuers will even let you set notifications that will allow you to keep track of your child’s spending.

Common Authorized User Relationships:

Most authorized users are couples, parent and child, or employer and employee. Since authorized users are not contractually obligated to repay the balance, there is no age limit on who can be an authorized user. It is important to keep in mind that any financial relationship can easily become strained, so be sure that the relationship is strong enough to withstand any missteps along the way.

For more information about the advantages and disadvantages of adding authorized users to your credit card account, contact us today.

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