Authorized Use on Credit Cards- A Risk Reward Scenario

I am often asked about the benefits of being an authorized user on another credit account. I wanted to address exactly what this means, since there have been many changes in the credit world recently, and some that impact this issue. First, let’s make a few definitions. An authorized user on a credit line is a person designated by the account holder to have access to the funds in the line of credit. For example, granny has a credit line of $10,000 that she really doesn’t use for anything, but she’s had it open for several years. She could elect to have one of her grandkids set up as an authorized user, allowing them to use the account just as she could.

The upside for the authorized user is that they gain access to a credit line and credit history that may be an improvement over their own. This may help an authorized user to build, enhance, or season their credit rating without needing to apply for credit of their own. Becoming an authorized user is not the same thing as two people who apply for a joint account. In that case, both people who receive access to a line of credit apply for the credit line and are established users from the moment the account is opened.

Now, to be fair, once an authorized user relationship is established, the liability for the credit line is very similar to that for a joint account. If one user accumulates debt on a credit line, both users are equally responsible for paying the debt and both of their credit reports can be affected by late or delinquent payments. With authorized users, the usual scenario that one might envision is the authorized user being the one who racks up the debt, leaving the original account holder in a bind. This, while it does happen, is not always the case.

Some authorized users are surprised to find that an account to which they have access (but that actually isn’t theirs) leaves them open to collections if the account goes delinquent. Maybe granny charged some items and found herself unable to pay for them later. The authorized user is just as liable for the debt as granny, at least in the eyes of the creditor.

These kinds of things are those you need to be aware of if you a) are an authorized user on an account, b) are approached by someone who wishes to become an authorized user on your account, or c) if you’re just curoious what this terminology refers to. Because of the general tightening of the credit industry, far fewer new credit accounts allow for authorized users, so this will likely only be relevant with accounts that have been open for at least a year or two. When you become a student of credit and your personal finances, the truth can help set you free.