Most credit card companies allow their cardholders to add an authorized user to their account – but why would you want to? There are various benefits; for example, you can kickstart your child’s credit history or provide a helping hand to a friend in a financial crisis. While these benefits appear fantastic, hold the phone before you call up your credit card company! Before you add an authorized user to your account, there are some risks to consider too.
An authorized user is an individual who uses someone else’s credit card in their name. Authorized users can use the credit card as their own, but they aren’t the primary account holder. Authorized users don’t have the authority to increase credit limits, add more authorized users, or perform any other administrative activities.
Adding an authorized user has benefits for both the primary account holder and the secondary cardholder. Sometimes both parties can benefit from shared card perks, which can be particularly great on fee cards.
As with everything in personal finance, there are risks to using authorized users in addition to benefits. Here are some of the disadvantages of authorized users for both the primary and the secondary cardholder.
Adding an authorized user to your account is the beginning of a financial relationship. For this reason, anyone you add as an authorized user should be someone you trust and with whom you can communicate.
It’s common for parents to add their children as authorized users on credit cards. This gesture allows their children to have an emergency payment method, learn about spending, and start building credit early. Usually, this process begins when children reach their teen years. Teaching teens about personal finance can help them develop healthy financial habits that will stick with them their entire lives.
As for friends, it’s reasonable to be skeptical about adding someone with a lack of credit or poor credit as an authorized user to your credit card. Keep in mind that little or poor credit is not always a sign of the inability to manage finances responsibly. Sometimes people lose their jobs, become sick or run into unavoidable emergencies, impacting their credit. Helping out a friend going through a financial crisis is rewarding and can strengthen your relationship. However, you should still be wary of friends who may struggle with healthy financial habits as you need to protect your finances first.
Other people you might add as an authorized user include spouses, parents, siblings, employees and significant others. You can add almost anyone to your credit card as an authorized user, but make sure it’s someone you know well and trust!
Adding an authorized user to your account can help others achieve their financial goals. But remember, you can only help others if your credit is in good standing. Most importantly, you should always put your personal financial needs first.