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Most credit card issuers allow account holders to add other cardholders on their account as authorized users. These additional cardholders can legally make transactions but can't be held liable for the payments or any delinquent debt.
Before becoming an authorized user, or adding one to your own account, make sure you understand what rights and restrictions apply. Being added as an authorized user can help you improve your credit and put you well on your way to getting a credit card of your own. Read on to learn more about authorized-user accounts.
What Is an Authorized User?
A person who opens a credit card account is the primary account holder, and is fully responsible for managing the account and making payments. As an authorized user, you are considered a secondary account holder. You have access to the account, but no ownership. Low credit scores or financial difficulties shouldn't prevent you from being added to the account, and having your name on the account can actually help lift your scores if it's reported to the credit bureaus.
Almost anyone can be an authorized user, and depending on the issuer, you may not even need to be an adult. All the primary account holder has to do is contact the credit card issuer and request that you be added to the account. You should then receive a copy of the credit card imprinted with your name.
When you make a purchase as an authorized user, the primary account holder will receive the bill. All of your charges will show up on the card's statements, so the account holder will be able to view your activity, where the transactions were made and the amount of your purchases.
To keep spending in check, some credit card issuers allow the primary account holder to set lower limits on the amount that authorized users can spend. So if the card's limit is $10,000, you may only have access to $1,000, for instance.
What Can and Can't You Do As an Authorized User?
As an authorized user, you have certain rights. Keep in mind there may be limits or fees imposed on what you can do with the card, and be sure you fully understand any potential repercussions before taking action. For example, you can:
- Use the physical card to make purchases at retailers
- Add the account information to your mobile device and make purchases
- Buy things online or over the phone
- Withdraw cash advances from the ATM
- Remove yourself from the account at any time (in most cases)
Of course, there are also things you can't do as an authorized user. These include:
- Change the mailing address and have the statements sent to you
- Close the account
- Increase the limit
- Add additional users
And then it gets tricky. Because authorized-user policies can vary by card and card issuer, the rules you're used to with one card may not apply to another card you're added to. For instance, some credit card issuers permit authorized users to access account information online. If yours does, you may be able to make payments, which could come in handy if the primary account holder is unable to or expects you to cover your own charges.
Other issuers even allow authorized users to redeem accumulated rewards. In that case, you could do things like use points to book airfare and hotel rooms (with the primary cardholder's permission, of course).
Before making your first purchase, it is critical to know that no matter how much you spend with the card, the primary cardholder will be on the hook for your charges. You are under no legal obligation to pay the issuer, but that doesn't automatically absolve you from the debt. The primary account holder could take legal action against you in pursuit of payment if you went back on a promise to pay them back.
More, the primary account holder can remove you as an authorized user at any time and without advance warning. If you're removed from the account, you may only realize it when you try to make a charge and it gets declined.
Is an Authorized User Different From a Joint Account Holder?
Although they may sound similar, an authorized-user situation is quite different from being a joint account holder. As a joint account holder you are considered a primary account holder, not a secondary user. You also can't be added at a later date as a joint account holder; you would have to apply for the credit card at the same time as the other person.
A common reason people become joint account owners is to increase their odds of credit acceptance. You may not qualify for a credit card on your own because you have poor or unestablished credit. By applying with someone who has great credit, however, the issuer may be more apt to grant the account. Both you and the other person would be equally responsible for payments and any resulting debt.
Joint accounts are listed on the credit reports belonging to both cardholders. So if the account is managed well, it will help each of your credit ratings rise. If it's mismanaged, however, neither of you can get your name off the card until the debt is repaid and the account is closed.
How Does Being an Authorized User Affect Your Credit?
One of the main advantages of being an authorized user is that it can give you a jump start on establishing credit with very little risk.
The issuer can report the account's account activity to the credit reporting bureaus, which helps to build or establish your credit history. As long as the bill gets paid on time and the balance doesn't climb too high, your credit scores should increase. That's because payment history and credit utilization are the two weightiest credit scoring factors. The longer a perfectly managed account is on your report, the more positive information will be calculated into your scores.
And if the primary account holder falters and fails to pay? The good news is that Experian will remove the account from your credit report. While it's important to enter into these arrangements with someone you trust, it should be a relief to know that another person's bad habits don't have the potential to hurt your own credit goals.
When you're an authorized user, be sure to check your free credit report from Experian to understand how the credit card account is listed. You'll want to see a long history of on-time payments, as well as a balance that's far below the credit limit. Free credit monitoring from Experian can also help you protect and improve your credit scoring by helping you address any potential fraud.