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Authorized User vs. Joint Cardholder: Choose Wisely, Spare Your Score

Credit Card Basics, Credit Cards
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Authorized User vs. Joint Cardholder: Choose Wisely, Spare Your Score

Suppose you decided to share credit with another person. In most cases, you could add him or her as an authorized user to one of your accounts, or open a new joint credit card together. But before deciding which option is best, it’s important to consider the benefits and drawbacks of each choice.

Authorized users

When you add someone as an authorized user on your account, whether he or she is a loved one or just a roommate you’re splitting expenses with, you’re giving him or her permission to make purchases using your credit card. You can add authorized users to an existing credit card account, usually through an issuer’s online portal.

Here are some things to keep in mind when adding an authorized user to your account:

You’re responsible for paying. Remember, as the principal cardholder, you’re the only one legally on the hook for any debt accrued on the account.

If, for some reason, an authorized user doesn’t want to be listed on your account, he or she can typically  remove themselves from the account by calling the creditor and making the request. But you don’t have that same privilege. You could be stuck with the bill and, potentially, a ruined credit score if that person runs up a debt with your card. Keep this in mind before adding someone to your account, and only add individuals you really trust.

You can boost someone’s credit, and may not cause harm when you make mistakes. If you have a much higher credit score than your authorized user, he or she may get a credit score boost when added to your account — if your issuer reports authorized user activity to the credit bureaus. For this reason, parents sometimes add their kids as authorized users to help them build credit.

Another benefit: Some issuers only report positive authorized user information to the credit bureaus, so if you miss a payment or overcharge, you won’t necessarily cause someone else’s credit to suffer. It’s important to carefully investigate your issuer’s policies surrounding reporting authorized user activity before adding a loved one to your account, because these vary industry-wide. 

Generally, your child needs to be over age 16 to become an authorized user, though there are a few exceptions to this rule. If you decide to add him or her, take the time to discuss credit card basics and lay out ground rules for using the card beforehand.

You can list additional income, even when you’re applying solo. Because of a recent revision to the Credit CARD Act, you can list all the income you have reasonable access to — including your partner’s — when applying for a credit card, whether or not you decide to share that credit account.

» MORE: Credit cards that help authorized users build credit

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Joint cardholders

Generally, it’s not a good idea to open a joint credit card with your friend or child, since you likely won’t be handling your expenses together long term. And if your child is under 21, this typically isn’t an option. But if you and your partner want to tackle your finances as a team, this could be a good way to go.

In most cases, you’ll need to apply for a new credit card together to get a joint account. Here are some things to consider before signing that dotted line with someone:

You’ll share responsibility for paying. With a joint credit card, you’re both liable for the debt you accrue on that account. By carefully spending, you can build your credit scores. On the other hand, missed payments and overspending will hurt you both. Remember to communicate often about your balance and payments so neither of you makes a costly mistake.

Your credit could suffer if the relationship changes. If you and the joint cardholder have a falling out, or if you decide to stop managing money jointly, you’ll likely have to close the account. This may lower the average age of your accounts and ding your credit scores. In the unfortunate event that the other cardholder dies, you’ll also likely be responsible for paying off the card, which could add stress to an already painful situation. In these cases, you may find yourself leaning heavily on other credit lines, potentially hurting your score.

This doesn’t necessarily mean that you should avoid opening a joint credit card — but you may want to keep your balance low so that in a worst-case scenario, you won’t be left with a large debt.

You’ll have fewer options. If you want to open up a joint credit card today, you may be out of luck with certain issuers. In 2013, Chase scrapped its joint cardholder offerings for the sake of simplicity. Capital One stopped offering the option over 10 years ago, and American Express never gave it to consumers in the first place.

If you ask your issuer to add someone as a joint cardholder (which issuers don’t typically allow), they may assume you want to add them as an authorized user instead. So confirm whether the issuer offers joint credit cards, then find out what the process for getting one is.

The next step

At the end of the day, if you can manage money well with your partner, relative or friend, it won’t really matter how you share your credit; you’ll both come out ahead because of your good spending habits. But if things go badly, and you’re sharing credit with an authorized user, he or she will likely be less affected; with joint cardholders, both of your credit scores will suffer.

That’s why it’s important to keep the conversation about credit going, no matter who you decide to share credit with. With the trust and communication, you can boost your creditworthiness together and earn more rewards.

Claire Davidson is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @ideclaire7 and on Google+.

Image via iStock.