Being an authorized user: how it works and the risks

Being added as an authorized user on someone else’s credit card lets you use their account without being the one who owes the bill. It can be a way to get access to credit when you don’t have a history, but it carries risks for both people, and it won’t always show up on your credit report.

What an authorized user is

An authorized user is someone the cardholder adds to their credit card account. The authorized user gets access to the card and can make purchases, but the account belongs to the primary cardholder.

A CFPB guide on sharing credit explains why people consider it. Not everyone qualifies for credit on their own. If a lender believes you can’t make the minimum payments, you may need a cosigner, or you may need to be added as an authorized user on someone’s account. The CFPB says this is especially true for young people who don’t have a credit history.

Who owes the money

This is a key difference between an authorized user and other kinds of shared credit. The CFPB says that being an authorized user generally doesn’t obligate you to pay the debt. In its example of parents adding their son to a card, the CFPB notes that although he can make purchases, only his parents are legally responsible for them.

How that compares with joint accounts and cosigning

The CFPB guide draws clear lines between the options:

• Authorized user: can use the card, but generally isn’t obligated to pay the debt. The primary cardholder can take the authorized user off the account at any time.
• Joint account holder: both people have equal access and are equally responsible for payments, no matter who made the purchase. The account appears on both people’s credit reports, and if a payment is late or unpaid, both are marked delinquent. The CFPB says taking a joint account holder off an account is difficult, if not impossible.
• Cosigner: has the same responsibility for payments as the main borrower, but may not get the benefits of the loan. The lender can try to collect from either person.

Always read the agreement for any account before you sign or join it. The CFPB stresses this for anything that requires you to repay money.

How it can show up on your credit report

The CFPB says credit card issuers typically report authorized user status to the credit bureaus. But the CFPB’s guide also warns that being an authorized user won’t necessarily help you build your own credit history, because not all banks and card issuers send authorized users’ payment information to the credit reporting bureaus.

If building a history is the goal, you and the cardholder should confirm with the issuer that your payment history will be reported. If it isn’t, you may want to look at other options covered in building credit from scratch.

The risks for both people

Sharing a card ties two people’s credit together in ways that aren’t always obvious. The CFPB’s guide lists these risks:

• Payment problems can affect both people. If either person runs up excessive charges or payments are missed, it could hurt the other person’s credit score too.
• Higher utilization for the cardholder. The cardholder’s scores could be hurt if adding an authorized user pushes up their credit utilization, which compares how much credit they use with how much they have.
• The cardholder pays. Since the primary cardholder is legally responsible, they’re on the hook for what the authorized user charges.

On the plus side, the CFPB notes that the cardholder can see all of the authorized user’s purchases and can take them off the account whenever they choose.

Questions to talk through first

• Does the card issuer report authorized users to the credit bureaus?
• What spending limits will you agree on?
• How will you handle it if a payment is late or the balance gets high?
• When might the authorized user come off the account?

If a debt collector says you owe

The CFPB answers a question from someone who was an authorized user on a relative’s card and wants to know, after the relative’s death, whether they’re liable for the debt. It says that if a collector claims you co-signed for the account and you didn’t, you can ask the collector for proof, such as a copy of a contract you signed.

Your credit report may help too. Because issuers typically report authorized user status, showing the collector the relevant part of your report may support your position that you were only an authorized user. The CFPB says you can get free reports from each of the three nationwide credit bureaus at annualcreditreport.com or by calling 1-877-322-8228. You can also read about your credit rights.

The short version

• An authorized user can use a card but generally isn’t obligated to pay the debt.
• Joint account holders and cosigners are legally responsible for the debt.
• Not every issuer reports authorized users’ payments, so ask before you count on it.
• Late payments or high balances on a shared card can hurt both people’s scores.
• The cardholder can see the authorized user’s purchases and take them off the account.

Sources

• CFPB: I was an authorized user on my deceased relative's credit card account. Am I liable to repay the debt?
• CFPB: Cosigning loans and sharing credit (teacher guide)

General information, not legal or financial advice. Laws and government guidance change, so check the sources above for the latest.