If you want to give someone else access to your credit card, there are a few options to consider. Sharing a credit card can help other people build or access credit that they might not otherwise be able to.
When you want to add a second user to your credit card, there are two options.
- An authorized user is given access to use your credit card. However, they have no responsibility to pay off the charges.
- A joint account holder is named as a co-owner of the credit card. Both owners split the responsibility to pay off the balance.
While this can sound like subtle differences, your choice can significantly impact your finances. It can impact your credit score and debt, if not managed appropriately.
What is a Credit Card Authorized User?
Adding an authorized user is a good way to allow someone else to make purchases on your card. However, the authorized user does not have to make payments on the balance.
This means that the ultimate responsibility for paying off any charges is on you, the primary card holder. The risk of having an authorized user is that they will spend excessively and leave you with the debt.
The primary credit card holder will not see an impact to their credit card score, provided that the balance is paid off on time. The authorized user will benefit from on-time payments to build their own credit score. They can also hurt their credit score if payments are not made on time, so it is a double-edged sword.
Benefits of an Authorized User
All of the benefits of adding an authorized user to your credit card go to the authorized user. They are able to potentially improve their credit score but could damage the primary cardholder if they over-spend.
Understanding this, one of the best times to add an authorized user is to build the credit score of a child. You can also do the same for any other friend or family member, but be aware of the risks.
Here are some times when it is most beneficial to add an authorized user.
- A teenager needs access to money to pay for small emergencies or while off at sleep-away camp.
- When a teenager would like to build their credit history before they apply for their own credit card.
- A family member has poor credit and is not able to get their own credit card.
If your goal is to build credit for a child, consider adding them as an authorized user but not giving them a card. If they do not have the physical credit card, they won’t be able to spend money without you knowing. This can help minimize surprise spending while still benefiting your child.
The one benefit for the card holder is that you retain control of your credit card. You will be able to add or remove authorized users at any time, so you can manage them if something starts to go wrong.
What is a Credit Card Joint Account Holder?
The other option for providing access to your credit card is to add a joint account holder. Joint account holders are both added to the same credit card as co-owners. They are equally responsible for paying down the balance and it functions like a single owner credit card.
To set this up, both people will have to apply for the credit card based on their unique credit history. The APR, or annual percentage rate, will be determined based off both of your credit histories. If one of you has a much lower credit score, your APR will be negatively impacted by that person’s credit history.
Be aware that payments made to the joint credit card will impact both of your credit scores individually. If you miss a payment, both of your scores will take a hit, no matter who’s fault it was. Canceling the credit card due to a falling out could negatively impact both of your credit scores.
In most cases, joint account holders cannot be added to an existing credit card. You would both have to apply for a new card that offers a joint account feature. There are several credit card companies that do not offer this feature, so check with your bank when trying to open one.
Benefits of a Joint Account Holder
One of the main benefits of using a joint account for a credit card is that you can combine your finances together. This holds you both responsible for making payments and there is more incentive to work together.
Some of the best times to choose a joint account holder include:
- Spouses who would like to pay bills through one credit card
- Members of a family would like to work together to maximize their credit.
When to Avoid Authorized Users or Joint Account Holders
It is often better to avoid both of these options whenever possible. There is considerable risk with opening your credit card to another person that could impact both of you. Even if they are family members and you trust them, there is always a chance of a falling out or unforeseen emergency.
In the case of an authorized user, they could end up taking advantage of you by spending money without your knowledge. They can then leave you to pay the bill with no responsibility to contribute.
For joint accounts, you also need to trust the person who is on your credit card with you. If they fail to make an expected payment or you cancel your card, it will impact your credit score. In the case that the other person dies, you would be left to pay off the balance by yourself.
Unless you truly trust the other person, it is advisable to avoid sharing your credit card with anyone else. Even when they are family, be careful to understand the risks before entering into this type of arrangement.
How Couples Can Combine Credit Card Finances
As my wife and I plan for children, we know that she will take at least a few months off from work. That means that we will only have one income for a while and will need to coordinate how we pay for things.
At first look, a joint account sounds promising because we would be able to manage all of our bills from one credit card. However, this is not easy to set up because we would have to apply for a new card and then link our online payment portals to it. Due to this, a joint account holder would not be the best option for us.
An authorized user would be easier to set up and is able to be added to most major credit cards. Since we are married, I’m not too worried about unexpected charges. My paycheck will have to pay off any charges anyways, so this could be a good option for us.
A third option is to keep using our existing and separate credit cards. We can then link my bank account to Jane’s credit card account. We can then work together to communicate when a balance is due and pay it out of my checking account.
As you can see, there are a few ways to share a credit card between couples or family members. Choose the option that works best for your situation and be careful of the risks before jumping in.
