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Building credit doesn't have to be a solo journey. When you join another person's credit card account as an authorized user, you can develop credit history without having to qualify for a card entirely on your own. And while you won't be legally responsible for the debt you incur, it's best to treat it as your own debt that you must manage carefully.
Asking another person to be a cosigner on your credit card account, however, means that they must pay any debt that you can't. Also, you have more limited credit card options if you want to add a cosigner. Explore the differences between authorized users and cosigners so you can choose the best route for you.
How Being an Authorized User Works
As an authorized user on a credit card account, you're able to make purchases, but only the primary account holder is responsible for paying off the debt. The account owner may decide to give you a physical card of your own—or not. To learn how to build credit responsibly, it's ideal to have your own card and pay the primary cardholder for any charges you make immediately. Make sure that the credit card issuer reports authorized users' behavior to the three credit bureaus (Experian, TransUnion and Equifax) so it does, in fact, help you.
On the flip side, if the person who owns the account maintains a high balance on the card or misses payments, the arrangement won't benefit your credit. Some credit bureaus may even include the main account holder's negative information on your credit report. That makes it crucial to choose wisely when considering whose account to join.
It's easy enough to remove yourself as an authorized user, if necessary, by calling the credit card company and making the request. Doing so could affect your length of credit history, though, if the account was the oldest you were associated with.
What It Means to Be a Cosigner
Unlike an authorized user, a credit card cosigner is legally responsible for paying the charges on the card if the primary cardholder can't. The account will appear on both cardholders' credit reports, and negative information will seriously affect the cosigner's credit—especially missed payments, since payment history is the largest contributor to a FICO® Score*.
The amount of debt on the card will also be factored into the cosigner's debt-to-income ratio, potentially affecting whether he or she can get credit in the future.
When Does It Make Sense to Be an Authorized User?
If you're in the process of building credit, joining an account as an authorized user can be an effective way to kick-start your credit history. A child, for instance, can be on a parent's credit card to develop credit of their own. You can also become an authorized user on a partner's, sibling's or other financially responsible person's account, as long as they keep their credit usage low and make on-time payments each month.
Also, most credit card issuers, with the exception of Bank of America, U.S. Bank and Wells Fargo, don't permit customers to add a cosigner. So going the authorized user route may be the best way to get access to a traditional credit card without much credit history.
If you don't have a trustworthy primary account holder available to you, there are many other ways to build credit. Look into credit-builder loans or secured credit cards, for instance, which you can get on your own—and, in the case of a credit-builder loan, without having to put down a deposit.
When You Should Choose a Cosigner
There are multiple ways to use credit cards without a cosigner, but some financial products may require a cosigner if you don't have sufficient credit history. A lender may decide you can't qualify for an auto loan on your own, for instance, which would make using a cosigner a strong option.
Private student loans may also require a cosigner, since undergraduates in particular often do not have enough credit to be eligible on their own. Federal student loans, though, are not credit-based, so students can get funding for college without a credit check. Compared with private loans, federal loans also generally have lower interest rates and more flexible repayment programs. It's best for students to borrow the maximum amount possible in federal loans, in addition to taking all the grants and scholarships they qualify for, before exploring private loans.
The Bottom Line
Combining finances with someone else is a major decision. Have a candid conversation about expectations, and the potential credit impact, before moving forward with becoming an authorized user or asking someone to cosign a loan.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.