How do you choose an authorized userBesides being great financial tools, credit cards are in part about convenience, and as such, there are features that credit card providers offer to make using them easy. One example of this is the ability to grant other people access to your account by designating them as an authorized user. Lots of people allow friends and family to be authorized users on their cards, for reasons varying from reaping extra rewards to helping them establish or build their credit, but should they? In this post, we’re discussing the pros and cons of assigning authorized users to your credit card and how you can decide whether it’s a good idea.

What exactly is an authorized user?

As we mentioned above, authorized users are individuals other than the primary cardholder who are given the authority to use a credit card account. Only the primary account owner, or owners for joint accounts, can designate authorized users, and often separate cards with the authorized user’s name can be issued for convenience so everyone isn’t sharing a single physical card. When it comes to spending, an authorized user of a credit card can use the card in much the same way that its owner can, which is why we advise that cardholders think long and hard before making anyone an authorized user on their account. Some credit card issuers have limitations on the number of authorized users you can have on your card (e.g., Discover allows up to 5), and a few might even allow cardholders to set spending limits for specific authorized users — American Express (a NextAdvisor advertiser) allows primary cardholders to do this — but for the most part, authorized users can spend up to the max credit limit of a card. Outside the domain of spending, though, an authorized user’s power is limited – they cannot, for example, request credit limit increases or transfer balances. While the limitations somewhat diminish the extent of the damage an irresponsible authorized user poses to your credit, the risks of abusive authorized users are still worth discussing.

The risks of adding an authorized user

Unlike when you open a joint account with another person, authorized users are unique in that they don’t share the same liabilities as the primary cardholder. Most credit card issuers allow the primary cardholder to designate a certain level of access to their authorized user(s), which can include the ability to check the account balance or make payments. If an authorized user doesn’t make a payment, it’s the cardholder who will ultimately be responsible for paying off the balance. Furthermore, since authorized users aren’t vetted in the same way that primary and joint cardholders are (i.e., there’s no credit check required to add one), they might not have good credit or an established credit history demonstrating how reliable they are as a borrower. Essentially, this means that a cardholder’s decision to select a specific person to be an authorized user is theirs alone, and the cardholder has nothing other than the authorized user’s word that the account will be used responsibly and any expenses they incur on the card will be paid. As such, it’s wise to be wary that the choice to designate someone as an authorized user on your credit card is a decision full of risks to consider.

Why would you want to make someone an authorized user?

If allowing an authorized user on a credit card sounds so bad, then why do people do it? There are a number of positives to authorized users. Joint accounts require both applicants’ credit to be examined for approval, so if one person has issues with their credit, the other can apply for the account in their name then designate them as an authorized user so the credit card can still be used by both parties. Likewise, the authorized user feature can be helpful for families. Parents often opt to put their teens on their cards as authorized users to give them reliable access to money as well as help their children learn responsible credit card use. Additionally, being an authorized user can help someone build their credit, as sometimes the card activity will be reported on their credit reports (since you must provide a person’s name and social security number to add them as an authorized user). That said, it’s important to note that this isn’t guaranteed – many authorized users see no evidence of the account on their credit reports. However, sometimes it does show up, which means that an authorized user can potentially build their credit, with or without making payments on the credit card, assuming the primary account holder makes regular, on-time payments. Finally, adding authorized users to your account can be helpful in obtaining intro bonuses and earning more rewards faster if it’s a rewards credit card.

How to choose an authorized user

There are a few questions you should ask yourself before making someone an authorized user on your credit card.

  • Is this person financially responsible? Credit card issuers use your credit scores and other information provided on your application to decide on your reliability as a borrower, but you won’t have that luxury when you add someone as an authorized user. You’ll have to think long and hard about the criteria you’ll use to evaluate anyone you give access to, as your standards will probably vary between people – your adolescent children likely aren’t going to be judged on the same metrics as a partner or sibling who probably has a visible financial. Consider whether the person has demonstrated responsibility in other aspects of their life (e.g., the type of lifestyle they live and any previous debts they might have held) and think long and hard about the extent to which you can trust the person you’re allowing to officially use your card.
  • Are you prepared for the worst-case scenario? While you ideally should be able to trust anyone you feel close enough with to let them share your account, don’t lose sight of the risks. In this case, the worst outcome is that your card is maxed out and you don’t have the money to pay it off, leading to high-interest and potentially an inability to make payments at all – which could lead your account to default and get sent to collections. If you have enough money to cover your card’s maximum credit limit, then while the situation will be uncomfortable, it might not completely destroy your financial life. However, few of us want to deal with paying off debts that aren’t ours, so make sure you really trust the person you’re adding to your card and thoroughly vet them beforehand. One way to combat this is to see if your credit card allows primary account holders to put a limit on the amount an authorized user can spend – if so, you can set the threshold at an amount you’d feel comfortable paying if they were to flake on you.
  • Are you willing to take this person to court? In some cases, incidents involving deceitful authorized users can feel similar to familiar fraud, as both involve someone you trusted running your credit into the ground. The major difference, though, is that you can’t go to the police or have credit card issuers excuse the debt because when you gave them access, you agreed to take full responsibility for any charges they might make. That said, you can still potentially take perpetrators to small claims court, if you took some precautions before adding them as an authorized user (e.g., signing a contract that explicitly details what would happen if they shirked responsibility). As with familiar fraud, many victims of exploitative authorized users might not feel empowered to go to court over damages, but it’s good to know it is an option.

Bottom line, if you don’t think you can recoup what you’ve lost in a worst-case scenario, that should factor into your decision to make someone an authorized user on your credit card. For more information on issues of credit and personal finance, keep reading our credit card blog.