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Should You Add An Authorized User?

by Jason Steele

Credit card companies can be compared to drug dealers. They are both willing to market their products as broadly as possible in order to establish a pattern of usage among their customers. To a drug dealer the continued use of their product is called addition. A bank refers to this pattern of usage as that of a loyal customer.

My best understanding of the drug trade comes from television and the movies.  There, pushers will offer potential new clients some drugs for free in order to trigger an addiction. Similarly banks offer sign up bonuses. This is free money to entice their customers to spend.

Lately, there have been more and more banks that are offering additional sign up bonuses for adding authorized users. People are wondering if that is a good idea.

What Is An Authorized User?

When you add an authorized user, you receive an additional card with their name on it. It has the same credit card number as the card you have, only the name is different. They are not subject to a credit check and you are still responsible for all charges. This is important for all sorts of reasons. Every time you apply for new credit, the banks run a credit check on one or all of the three major credit bureaus. Many people refer to these checks as pulls. Relatively minor inquiries are called “soft pulls” while the major check they do when you request a new line of credit is called a “hard pull”.  Having a lot of hard pulls in a short amount of time is interpreted by the credit bureaus as a sign of financial distress. In their view, the person is looking desperately all over town to borrow money when in fact they may just be trying to get more sign up bonuses. Whatever the reason, the person’s credit score will fall, at least temporarily, in the face of multiple hard pulls.

Since adding an authorized user is not an application for new credit, there is no hard pull and no adverse affect on their credit score. The flip side is that this authorized user can charge whatever he or she pleases and you, the account holder, is ultimately liable for paying the charges. In short, choose your authorized users very carefully. In fact, if you are just trying to get a sign up bonus, you may wish to add an authorized user but not give the card to that person.  Once you receive the sign up bonus, you can then call your bank and cancel the card.

When Is Another Card Holder Not An Authorized User?

There is another type of account where multiple cards are issued. In a joint account, both parties are applicants and both of them are equally responsible for paying the balance. Actually “Equal” is not the most accurate term. The word “equal” could conceivably imply that either party could pay half of the account. That is not so; both parties are each fully responsible for paying the entire balance even if the other party pays nothing. They are essentially co-signers to a loan. You can easily imagine how this arrangement could prove disastrous in the event of a divorce or another type of falling out between the two parties.  It often happens that both parties continue to rack up charges on the hope that the other party will pay off the balance. Kind of like a greed motivated, financial suicide pact, both parties then attempt to feast on the remaining credit line before they both face delinquency and default. Like other aspects of divorce, this situation is not pretty.

Which Should You Choose?

When looking for a payment option for a minor or another type  of family member, adding an authorized user can be a good way to go. The primary user can monitor the other card holders usage, and even cancel the card as necessary. For a married couple, or anyone else in a committed relationship, a joint account is the most common. That said, I would only recommend this for couples who combine their expenses. A joint account offers the advantage of both parties being able to manage the account without the permission of the other. For example, I have an account where my wife is merely an authorized user. On occasion, she has called to report her card being lost and was told that I, as the primary account holder must make the report. Having learned this lesson, we have agreed to make sure we are both listed as joint account holders when possible on future credit cards.

Conclusions

The two types of multi-user accounts each offer their own advantages and disadvantages. There are few downsides to adding an authorized user merely to gain an additional sign up bonus but otherwise, you should carefully consider both options.

 

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