When applying for a credit card, you’ll usually see a place to add authorized users. The banks will phrase it like “ADD UP TO FIVE PEOPLE TO YOUR ACCOUNT FOR NO EXTRA CHARGE!” If you do this, the bank will send credit cards to everyone. Great, right? Maybe, maybe not. Here’s a quick rundown of what an authorized user is and why it may be a good or a bad idea to add one to your account.
It helps to understand what an authorized user actually is. When you have a credit card, you are financially responsible for all charges made to the card. An authorized user is an additional person you add to the account who is not legally obligated to pay any of the debt (charges) made to the account; the primary user (that’s you) is responsible for those debts.
There are no restrictions on who you can add as an authorized user to your account. You can add your spouse, your kids or grandkids, your parents or grandparents, your neighbor, your co-worker, your barista, the person who cleans your pool, or some stranger you met in line at the 7-Eleven. As long as you have their information (and sometimes their Social Security number), you can add them to your account. Remember the rule from above before doing so – ANY charges they make to their card is your responsibility to pay back, not theirs.
When should you add an authorized user to your account? There are several times when it may be a good idea:
Banks will often provide a bonus for adding an authorized user, either during the signup application or after you have the card.
Banks want more of their cards out there for people to use. After all, you can’t charge things to a card if you don’t have the card in the first place. Depending on the value of the offer, it may be a good deal to add an authorized user to your card for this purpose. However, it does also have some downsides that I’ll discuss later.
There are some credit cards, such as the American Express Platinum card, that give excellent perks like lounge access when traveling. American Express charges $175 to add up to three additional users to the card. Each authorized user will then get access to the Centurion airport lounges, Delta Sky Clubs, and a Priority Pass Select membership. Each authorized user will also get credit for Global Entry or TSA Pre✓® every 5 years. If you add in the extra benefits like automatic status at Hilton and Marriott, you can see there’s value in adding additional users. This makes even more sense if the primary and authorized users often travel separately. Remember, anything that’s charged to their Platinum card is your responsibility to make sure the bill gets paid.
Having an authorized user also makes sense if you want to take advantage of certain perks a particular card provides. If you add an additional user to a Chase Freedom or a Discover card, each user can maximize spending in the 5x bonus categories every quarter. Since these are both no-fee cards, there’s no additional charge for adding an authorized user to these accounts.
STRATEGICALLY COMBINE SPENDING
You may want to have an authorized user on your account to combine spending. This will make it easier to hit the minimum spending requirement when getting a new card or to reach a threshold, like the 30 transactions a month needed to trigger the 50% bonus on the American Express Everyday Preferred card.
KEEP TRACK OF SPENDING
Adding an authorized user to your account can help you keep track of the spending on those cards. This may be helpful if you want to give a card to one of your children or to your parents. You can see their spending online and even set alerts to let you know every time they use the card if you think that’s necessary.
Giving an authorized user card to your child away at college allows them to have access to a credit line, in case of emergencies or to buy those expensive textbooks, that would be larger than they could get by themselves. It may also help them build a credit history, as long as you have a good credit history, to begin with.
THE DOWNSIDES OF AUTHORIZED USERS
There are some negatives when you add an authorized user to your card. The obvious one is you are legally responsible for all charges made to the card, no matter who the person charging them was. So you have to make sure anyone you put on your credit account is responsible enough to handle their own credit as well as respect yours.
I mentioned above how someone can become an authorized user on an account to help to build their credit history. This is because being an authorized user on a card may show up on your credit report. This is good for someone with little credit history but can be a negative if you want to apply for multiple cards for the signup bonuses since banks may limit the number of cards you can get in a specific time frame. Some banks, such as Chase, only allow you to get five new cards in 24 months. When you’re added to a card as an authorized user, it shows up on your credit report and may keep you from being approved. Now, you can call the bank and say you’re only an authorized user (and not responsible for the charges on the card), but it adds an additional hurdle to clear before getting approved.
Adding authorized users to your credit card accounts has both positives and negatives. In certain situations, it can be a huge benefit to add someone to your account. Still, you have to weigh the negatives in terms of financial risk and opportunity cost of getting other sign up bonuses. As is often the case, Your Mileage May Vary.
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This post first appeared on Your Mileage May Vary