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What’s the Difference Between Authorized User and Co-Signer?

Credit Card Basics, Credit Cards, Credit Score, Personal Finance
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What's the Difference Between an Authorized User and a Co-signer?

A couple of terms that credit card customers often confuse: “authorized user” and “co-signer.” They sound interchangeable, but if you’re thinking about sharing your card with someone, knowing the difference can protect your finances and your relationship.

What it means to be an authorized user

Becoming an authorized user basically means you have the primary cardholder’s permission to use the credit card. Authorized users have access to the cardholder’s full line of credit and can charge as they please. That’s different from just lending your credit card to your teenager to go pick up groceries; in that case, the supermarket could deny the purchase, because the card is not your kid’s to use. Authorized users are legally “authorized” — the card is as much theirs to use as it is the primary cardholder’s.

For years, parents have listed their kids as authorized users on their own cards to help the kids build a positive credit history. That works because the three major credit bureaus — TransUnion, Equifax and Experian — report authorized user status, and those are taken into account in most credit scores, though it may not be weighed as heavily as an account that the user has responsibility for paying. That means that, as you use your credit card responsibly, your authorized users benefit, though perhaps only slightly.

» MORE: Credit cards that help authorized users build credit

What it means to be a co-signer

Adding someone as an authorized user means trusting that person to use the card responsibly. But co-signing a credit card for someone ups the ante. That’s because co-signing means you’re basically vouching for the other person’s purchases. If the person whose plastic you co-signed doesn’t make payments on the card, the bank is going to turn to you for the money. If you fail to make good on the payments, your credit score will take a hit.

A few things to chew on

When considering the difference between an authorized user and a co-signer, it helps to think about the relationship from both directions:

If you add someone as an authorized user to your card, you’re responsible for paying off the purchases they make. But if you’re the authorized user, you won’t be required to make payments on the card if the primary cardholder doesn’t — though your credit might take a hit. (You can ask credit bureaus to stop reporting you as an authorized user, though.)

If you co-sign a credit card for someone, you are responsible if that person fails to make payments. If someone is co-signing a card for you, they’re agreeing to take the risk that you might not pay the bill, leaving them with debt and maybe hurting their credit score.

Credit-sharing can be dicey, so when deciding whether to jump in, ask yourself:

  • For starters, how much do I trust this person? Has he or she had problems with overspending or paying bills?
  • Can I afford to pay off a large credit card balance if the other person becomes irresponsible with the card?
  • Am I responsible enough to hold someone else’s credit in my hands?
  • Can the other person get credit without me? Basically, is sharing a credit card with me his or her only opportunity to build credit, or are there other options?
  • Can our relationship withstand the stress that money can bring?

It’s important to consider all this, because sharing your credit card with the wrong person can turn ugly.