Adding an authorized user to your credit card account to help them improve their credit might seem like a great idea — until they rack up a bunch of charges you’re on the hook for.
Although there are clear benefits for the authorized user, there can be negative consequences for both of you if you’re not careful. Let’s dig into the advantages and disadvantages of adding an authorized user on your card.
1. It can help the authorized user build credit
In 1974, Congress passed the Equal Credit Opportunity Act. This law requires lenders to report information on spousal authorized user accounts to the credit bureaus. Lenders also must consider this information when making credit decisions.
But since creditors don’t specify whether an authorized user account is owned by a spouse, all authorized users get the same treatment. As a result, adding an authorized user to a credit card account with good payment history can give their credit a boost.
Other positive aspects of your account also will transfer to the authorized user’s credit history, such as a low credit utilization ratio and how long the account has been in good standing.
That’s why adding your child as an authorized user on your credit card while they’re in college is a great way to help them build credit. It’s also a good way to help someone rebuild their credit after bankruptcy or another negative credit event.
2. It also can hurt the authorized user’s credit
A positive credit history can lift an authorized user’s credit score, but a negative credit history can drop it. Adding an authorized user to your account when it has late payments — even if they’re in the past — and high balances can be damaging to their credit.
Before you add an authorized user, discuss your account’s history with them so there aren’t any surprises.
3. The authorized user isn’t liable for any purchases
When you add an authorized user, they receive a credit card that’s tied to your account. Since they’re not a joint account holder, though, they aren’t legally responsible for paying off their purchases.
So even if you have a personal arrangement with the authorized user, the credit card company will go after only you if the account is delinquent.
In my experience, some credit card companies don’t even specify which purchases came from you and which ones came from the authorized user. If this feature is important to you, American Express is one credit card company that offers it.
If you’re adding an authorized user solely to help them improve their credit, you can avoid these problems by not letting them use the credit card at all. They’ll still get the benefits of your use of the account. Otherwise, make sure to have a clear plan for who owes what.
4. You generally can’t limit an authorized user’s spending power
By adding an authorized user to your credit card, you’re giving them the keys to the kingdom, so to speak. For example, if you have a $10,000 credit limit, the authorized user can spend up to that much if it’s available.
Fortunately, some cards allow you to set spending limits:
- American Express is the only major credit card company that allows you to limit and monitor what authorized users spend on all its personal credit cards. The card issuer also allows you to freeze authorized user cards and get spending alerts.
- The Costco Anywhere Visa® Card by Citi* allows you to set monthly spending limits. The card also shows which cardholder made which purchases.
- Many business credit cards — including cards from American Express, Bank of America, Chase, and Citi — allow you to set spending limits for authorized users who are presumably employees. In most cases, activity on a business credit card doesn’t affect an authorized user’s credit score. Check with the card issuer before applying to learn its terms.
5. Adding and authorized user can strain your relationship
Adding an authorized user to your credit card requires mutual trust. You must trust each other to use the account responsibly to avoid negative credit and financial implications.
If something goes wrong, it could result in blame and resentment, which can impact your relationship. Although the benefits of being an authorized user can be significant, they’re not worth destroying a relationship over.
Set expectations before adding an authorized user
Before adding a loved one or employee as an authorized user on a credit card, have a frank conversation about expectations. Set some ground rules you both agree to follow.
All things considered, there’s no right or wrong answer when it comes to whether you should add an authorized user to your account. As long as you know the consequences and communicate effectively with your authorized user, you can help them build or rebuild their credit successfully.
*The information related to Costco Anywhere Visa® Card by Citi has been collected by Student Loan Hero and has not been reviewed or provided by the issuer of this card prior to publication. Terms apply.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 7.49% APR (with Auto Pay). Variable rate loan rates range from 2.14% APR (with Auto Pay) to 6.79% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of September 6, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 09/06/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.19% effective August 10, 2019.
6 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
7 Important Disclosures for College Ave.
College Ave Disclosures
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1College Ave Refi Education loans are not currently available to residents of Maine.
2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 08/01/2019. Variable interest rates may increase after consummation.
|2.14% – 6.79%1||Undergrad & Graduate|
|2.14% – 7.71%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.43% – 7.60%4||Undergrad & Graduate|
|2.14% – 8.01%5||Undergrad & Graduate|
|2.06% – 8.93%6||Undergrad & Graduate|
|2.74% – 7.24%7||Undergrad & Graduate|