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By Michelle Huffman
Adding an authorized credit card user has become a popular way to help someone — typically a child, spouse or another family member — build his or her credit.
When a credit card account holder adds an authorized user, the account activity will appear on his or her credit profile. This essentially allows an authorized user to “piggyback” on the credit card account holder’s positive credit card history without needing to open a new card. This can help someone with a thin or poor credit file build credit.
While the account holder can potentially benefit by building rewards points or keeping a rarely used card active, the authorized user is the primary beneficiary of this strategy. However, adding an authorized credit card user carries inherent risks for both parties.
If the account holder gives the authorized user a card to use, that authorized user may run up a big bill — and is legally not responsible for payment. And if that account holder is relying on the authorized user to make payments and they’re not made on time, the account holder’s credit will suffer. Similarly, if the account holder runs up a big balance or misses a payment, the authorized user’s credit will suffer.
To avoid these pitfalls, here’s a list of dos and don’ts to help you add an authorized user to build credit without creating problems.
When you add an authorized user to your account, make sure it’s someone you can trust. This really isn’t the kind of arrangement for casual friends or long-lost relatives — it should really only be used to help a close relation like a child or a spouse build credit. If you trust the authorized user, select a credit card that will provide maximum benefit toward credit building. According to credit bureau Experian, a card that has these qualities is ideal:
Why are those three points important? They all contribute to a good credit score.
This arrangement really isn’t a credit card with training wheels for a child. An authorized user does not get a credit card statement and does not have to pay the bills. If one of your goals is to teach your child these valuable skills, integrate their authorized user status into a larger discussion about budgeting, credit and financial wellness. Introduce them to the tools you use to track and pay bills on time and do it with them or make bill payment the child’s responsibility (with your oversight, of course).
Adding an authorized user to your credit card account does not mean that person must have access to any credit to benefit from your financially responsible credit behavior. You could, however, allow this authorized user to have a card. Before doing this, consider these questions:
If the established arrangement goes haywire and either the authorized user or the account holder is making poor choices — racking up a large balance, not paying the balance each month, not paying on time — then you may have to sever the agreement. As an account holder, you can remove an authorized user from the account by calling your credit card company. This will impact the user’s credit file as the account disappears, particularly if the user has no other credit accounts. Users can also remove themselves from the account by calling the credit card company.
With another person on your account, it’s important to monitor your account more closely. Transaction or spending alerts can alert you whenever someone uses a credit card associated with your account, so you will know right away if this is an approved charge (according to your established rules) or not. Even if you don’t give out a card, these alerts will let you know if someone is illegally using your card or card number and you can head off an impact to your credit report quickly.
Allowing an authorized user onto a rewards card can be extra beneficial for the user, but it can also be beneficial for the account holder. Certain cards extend benefits to authorized users or additional cardholders, such as lounge access or TSA PreCheck. You can also rack up rewards faster or meet certain spending thresholds if someone else is charging on the account.
Many card issuers report credit activity to the credit bureaus for authorized users, but some may not. The account holder should call the card issuer to ensure this is the standard practice.
By being careful with this arrangement and establishing clear rules around it, authorized users may improve their credit, giving them a clear advantage as they move forward financially.
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