Have you ever wondered about the difference between an authorized user and a joint account holder for your credit card?
It’s a commonly asked question with a not-so-simple answer — and the details could have a big impact on your financial well-being.
At the most basic level, an authorized user is someone who is approved to make credit card purchases with your account but is not responsible for the credit card balance.
A joint account holder is someone who co-owns a credit card account and is equally responsible for paying the balance.
Some — but not all — credit card issuers will offer you the ability to add either to your account. Each can have a direct impact on the credit rating of all parties involved. It’s important that you have a strong understanding of both options before adding another person to your account or joining someone else in sharing a credit card.
As mentioned above, adding an authorized user to your credit card account will allow another person to make purchases without being responsible for paying off the balance.
Multiple people can have credit cards under a single account, but only the primary account holder is ultimately responsible for the money owed when the bill comes due. This can be a beneficial approach for families with older children in need of a way to pay for things when their parents are not available, for example.
Don’t mistake that for meaning the authorized user is free of all financial repercussions, though. A missed payment can reflect negatively on all authorized users on an account when it comes to credit scores. This also holds true for credit utilization rates, which can spike with a large outstanding balance.
Clark says that he hears all the time from people who regret naming authorized users: “We’ve had call after call after call where someone has an ex-friend that they’ve made an authorized user on their card. Then the friendship ends and the charges begin and they’re responsible for them.”
Just as an authorized user’s credit score could be negatively impacted by the primary account holder’s spending, they can benefit from good account behavior. In fact, you may find the authorized user option a great way to help a young person looking to establish credit or someone who is trying to rehabilitate a poor credit score.
“If you’re allowing someone to be an authorized user for the purpose of helping them establish credit, great, but otherwise be very careful,” Clark says.
Lori Silverman, Director of Clark's Consumer Action Center, has a suggestion that she says worked when she was trying to help her kids out. "If your goal is to help someone build credit, you can make someone an authorized user and just never give them the card," she says.
According to Lending Tree's ValuePenguin, the following credit card issuers report results for authorized users to at least some of the credit bureaus:
- American Express
- Bank of America
- Capital One
- Credit One
- Department Stores National Bank
- Navy Federal Credit Union
- US Bank
- Wells Fargo
If your issuer does not report authorized users to the credit bureaus, it likely will not impact their credit score. It’s a good idea to contact the card issuer you’re planning to use to ensure you know their reporting policies prior to making a decision on adding an authorized user.
A joint account holder, on the other hand, is pretty much a co-owner for a credit card account. With a joint account, each party is equally responsible for payment of the balance on the credit card.
All parties involved are likely to be required to go through the application process, which can impact the annual percentage rate (APR) on the card issued. They also will be subject to direct impact on their individual credit scores based on the actions taken with the account. A single missed payment, for example, could negatively impact two different credit scores.
It can be difficult to get a joint account holder added to an already established account, so a new application may be required. Those seeking a joint account may also find card options limited, as some issuers choose not to deal with joint accounts. Well known card issuers like American Express, Citi, Discover and Capital One don’t even offer the joint account holder option. For those companies and others like them, authorized users may be your only option for account sharing.
It should go without saying that joint account holders should have the utmost level of trust in one another. Spouses or close family members are likely candidates for this setup. Be warned that this arrangement can make it hard to have an account closed, and could easily lead to unwanted debt if the other user’s spending gets out of control.
If there is a falling out and the account is closed, users could see credit score impacts based on utilization rate and average age of credit. If one of the joint account holders dies, the other would likely be left responsible for the full balance alone. All are things to carefully consider here.
Some scenarios in which use of an authorized user scenario may be helpful:
- Someone in your household has poor credit and is unable to obtain a card on their own
- A young adult in the household needs help developing credit history
- A teenager in the household needs access to funds for nominal or emergency purchases
Some scenarios in which use of a joint account holder may be helpful:
- Spouses or partners who wish to set up a new account to pay bills together
- Members of a household want to "combine forces" for the best possible credit opportunity
In most cases, it is advisable to avoid both authorized users and joint account holders, if possible. Ultimately, only you can completely control your financial well being. There are simply too many seemingly small issues that could negatively impact your credit score when adding users to your account.
However, life rarely provides for perfect financial situations. There are times that an authorized user or joint account holder could be a reasonable solution for a household.
The authorized user path is the simpler and safer route to take if you need to share an account. Sure, you’re on the hook alone, but you’re also in complete control if things go sideways.
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