Joint Cardholder vs. Authorized User: What’s the Difference?
If you want to share a credit card with someone, you have two options: become a joint cardholder or add the person as an authorized user to an existing credit card. Which choice you choose will depend a lot on your relationship with that person, including how much trust you have.
Read on to find out the difference between these two options and which one is best for you.
Joint card holder
If you choose the joint card holder route, you and the joint holder are considered equal. According to Alexander Lowry, professor of finance at Gordon College, you must apply for the credit card together in order to get a joint account.
“The card issuer will verify people’s credit and income information to approve the request,” Lowry said. “If you are approved, you will both be added to the account and issued credit cards in your name.”
This means that you are both able to charge for purchases on the account, sharing the total credit limit. It also means that you are also responsible for the invoice.
So if one person accumulates a large balance and fails to pay it off, both cardholders suffer the consequences. At a minimum, these consequences include a blow to their credit scores. Potentially, both parties could end up with an account in the collections if it is not brought back into good standing.
Dan Mahoney, Certified Financial Planner and President of True Square Financial, says, “A joint cardholder is usually fully responsible for paying the bill, even if the other joint cardholder does not pay.
But all is not pessimistic. Joint owners also benefit from each other’s good habits. Regardless of who sends the check, both cardholders get credit for paying the balance on time. And a strong balance sheet leads to a long, positive credit history for both.
One challenge you might face, however, is that many financial institutions no longer offer joint credit card accounts. The only two big banks that do are Wells Fargo and Bank of America, reports The Motley Fool, which means your options are limited if you want a community card.
Why add a co-holder of the card?
You can share the responsibility of paying the bill. If you are partly responsible for household finances and don’t want to be solely responsible for the expenses, adding a joint cardholder is a way to distribute the responsibility more evenly.
It simplifies your finances if they are already mixed up. Many couples share checking accounts, savings accounts, loans, and other financial commitments, so becoming joint cardholders on one account is often the most convenient option.
If you find a credit card that offers a joint cardholder option, carefully consider whether you are comfortable sharing that financial commitment with someone else. “This option ties your finances tightly,” Lowry explains.
Unless you are in a trusted and committed partnership, intertwining your finances to this degree is probably not worth it in the event of a falling out or if the joint cardholder is not handling the account responsibly.
Authorized users are similar to joint owners in that they can make purchases on the shared card. The main difference is that they have no legal responsibility when it comes to paying the bill. “The primary cardholder is the only one legally required to pay debts on the account,” Lowry explains.
In addition, authorized users can be added and removed from the account easily and at any time. “The card issuer will add the new user, no credit check is required, and send a card with their name on it,” Lowry said. You can usually add an authorized user through your card issuer’s online banking platform or by calling customer service.
When it comes to credit scores, authorized users work the same as common cardholders. Although the card issuer cannot sue the authorized user for payment, late or missed payments by you can harm their credit. Most other negative account activity will also impact their credit.
“It’s a two-way street,” Lowry says. “If you miss a payment or accumulate debt, it could be reflected in their credit history as well as your own. So if you don’t trust yourself to build your own credit, you might not be the best person to help someone else build their credit. ”
However, some card issuers only report positive activity credit bureaus on behalf of authorized users. If you’re concerned about how your behavior might affect your Authorized User, be sure to ask what types of account activity is being reported.
Why add an authorized user?
You have more control. Unlike a joint account holder, you can add and remove authorized users as needed – the account is always in your name.
You can help a loved one build credit. If you want to give your child a head start on mortgage, or just a way to use credit if they’re not old enough for their own card, you can add them as an authorized user. Likewise, if you have a close friend or family member who is struggling with credit, making them an authorized user can help boost their score.
“When you authorize an authorized user to access your card account, you agree to be responsible for everything they charge on their card,” Mahoney explains. “So it’s important to set clear expectations and only share your card account with people you trust.”
If you are concerned that your authorized user will charge an invoice, you can add it to the account but lock the card itself.
Sharing your credit card with another person is inherently risky. But if you choose the right person, it can be a win-win situation.