When you have a credit card in your name, you generally have the option to add someone else as an authorized user. If you do that, the authorized user doesn’t have to apply for a card themselves — they are simply added on to your existing account.
There are plenty of benefits to adding an authorized user, but you’re also taking a big risk when you give someone this status. Before you decide to move forward, be sure to ask yourself these three important questions to ensure you’re making the right move.
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1. Why does this person need to use my card?
When you add someone as an authorized user, you are allowing them to use your credit card account as they wish. This is a big decision, so ask yourself if it’s really necessary to give someone unfettered access to your account.
In some cases, it makes a lot of sense to provide another person with the authority to charge items to your account. For example, if you own a business, you might want to let an employee use your company credit card account so you can track those purchases and earn credit card rewards for them. Or if you’re married, you may want to give your spouse access to your card to pick up items at the grocery store.
But it’s important to consider the reasoning before you move forward because you only want to let someone use your card if there’s justification for doing so.
2. Can I trust them?
Once you’ve made someone an authorized user, you are responsible for every charge they make on your card — even if they don’t ask your permission first.
For example, say you make your child an authorized user on your card for emergencies when they go away to college, and they end up charging a whole lot of drinks with it. The credit card company will hold you responsible for paying the bill — regardless of whether your child was supposed to spend that way.
You’re also the only one with a legal responsibility to pay on the card — even if the authorized user made the charges. They have no legal obligation to pay off what they owe. So you need to make sure you are 100% confident they’ll use your card wisely and not abuse your trust if you’ve given them authorized user status.
3. Do you both understand authorized user status?
Finally, both you and the authorized user need to know your rights and responsibilities.
As mentioned above, you are the only one who has to pay the card balance, so make sure the authorized user is aware of the major financial obligation you are taking on.
It’s also important to note that the card will show up on the authorized user’s credit report — but only as long as their authorized user status remains in effect. If someone uses your card for years as an authorized user, they won’t be developing a credit history of their own with their spending on that card. If you decide to remove them from the card, that could be a problem later.
If your teen uses only your card as an authorized user until they are 25, for example, then when you finally want to remove them, they’ll have no credit record and could struggle to get approved for a card in their own name.
So make sure you both understand the risks and benefits of being an authorized user — and then determine how confident you are that the person you’re designating as an authorized user is trustworthy. That way, you can avoid making a mistake you’ll come to regret.
View more information: https://www.fool.com/the-ascent/credit-cards/articles/3-questions-to-ask-before-adding-an-authorized-user-to-your-credit-card/