Consider These Tips Before Adding an Authorized User to Your Credit Card – Money
- October 16, 2020
- By: Greenpath Financial Wellness
Money Magazine shares GreenPath’s advice when it comes to adding an authorized user to your credit card.
Money Magazine highlights the factors to consider if you are feeling generous and want to help out someone with no credit.
The article notes that while it is possible to add an authorized user to your credit card, there are risks before you take them on.
Katie Bossler, Quality Assurance Specialist at financial nonprofit GreenPath, says that adding an authorized user is favorable because building credit takes time.
Credit Score Implications
Your credit score is critical to your overall financial health. Adding an authorized user may turn sour if the user goes wild and buys a bunch of expensive items on the account holder’s card, too. It’s not a joint account; you don’t share the burden. The debt belongs to the account holder even if the transaction doesn’t.
“He’s not left holding the bill,” Bossler says. “He’s not responsible for paying it back.”
The No. 1 factor in a credit score is on-time payments, but another potentially hairy area is the utilization rate. Cardholders are generally advised to keep their credit utilization ratio, which measures credit used in relation to credit available, under 30%. Adding an authorized user could change this important measurement.
That sort of agreement plays into consideration around authorized users. You should only add people you wholly trust in your account.
Bossler recommends having a sit-down with a sibling/relative/friend before putting them on my card. You should hammer out some ground rules about how much they’re allowed to buy, how they’re going to pay you back, and what you’ll do if you end up carrying a balance. From there, proceed with caution.
“We’re blending family and money,” she says. “If things don’t go well, it can be a strain on the relationship.”
Think it Through
Adding an authorized user on your card can give someone an advantage, but you should be careful. You’ll need to trust them to not run up debt, and they’ll need to trust you to make payments on time.
You’re ultimately responsible for what happens, though there are ways to keep tabs on the authorized user. For example, you can pull your credit report (right now you can get one a week for free) and set up text alerts for any spending that happens on the account.
There is a failsafe, too: If it doesn’t work out, you can always remove the authorized user.
“You remain in control,” Bossler says. “You can add them on but also take them off.”
We Are Here To Support You
Understanding how to manage credit starts with a conversation. Our financial counselors are available to talk. They can help you figure out a plan and will walk through your whole financial picture to help you get credit cards under control.
Katie Bossler has been with GreenPath since 2003. She currently serves as a Quality Assurance Specialist and is based out of our Detroit office. Katie passionately believes everyone can achieve financial wellness and is grateful to dedicate her work in helping GreenPath remix the American Dream so it works for everyone.