Do Authorized Users Pay for Debt? Understanding the Impact on Your Credit

In the U.S., adding authorized users to a credit card account has become an increasingly common practice. Parents add their children, partners include each other, and some friends may even help one another by adding a name to their accounts. 

This trend is reflected in a recent report that analyzed over 230,000 credit profiles, revealing that more than 33% of individuals hold at least one line of credit as an authorized user. But what does this statistic really mean, and why is it so significant? 

The study offers valuable insights into the impact of being added as an authorized user on credit behavior and financial outcomes, but many people remain unclear about the actual responsibilities involved. 

In this blog, we’ll explore what it truly means to be an authorized user, also covering the legal responsibility and credit score impacts. 

Key Takeaways

• Authorized users are not responsible for the debt on the credit card; the primary cardholder is.

• Being an authorized user can positively impact your credit score if the account is well-managed (e.g., improved credit history, credit utilization).

• Late payments or high balances on the primary cardholder's account can hurt an authorized user’s credit score.

• To protect yourself as an authorized user, monitor account activity and understand the primary cardholder's financial habits.

• If needed, remove yourself from an account by following the credit card issuer's process, and monitor for correct updates to your credit report.
  

What is an Authorized User?

An authorized user is someone added to a credit card account by the primary cardholder. Unlike a joint account holder, an authorized user is not legally responsible for the debt on the account. 

The primary cardholder maintains full responsibility for repaying the debt, while the authorized user simply benefits from the account’s credit history.

1. Difference from a Joint Account Holder

The key difference between an authorized user and a joint account holder lies in liability. 

A joint account holder shares equal responsibility for the debt on the account. This means both parties are legally responsible for making payments, and missed payments affect both credit scores equally. 

On the other hand, an authorized user is not liable for the debt, and their credit score is influenced only by the account's balance and payment history, not by any financial obligations.

2. Typical Scenarios for Adding an Authorized User

There are several common situations in which someone might be added as an authorized user:

• Parents adding children: Many parents add their children to their credit card accounts to help them build credit. This is especially common for minors or young adults who may have limited or no credit history.

• Spouses: One spouse may add the other as an authorized user to improve their credit score or to provide them access to the credit card for shared financial responsibilities.

• Friends: Some people add close friends to their accounts to help them build credit, especially if the friend has a limited credit history or has had difficulty obtaining credit independently.

  
  

3. Legal Standing in the U.S.

In the United States, authorized users are not legally responsible for the debt on the credit card. The primary cardholder holds full responsibility for paying the debt and maintaining the account. 

The authorized user can use the card to make purchases, but they are not liable for the charges. However, while authorized users are not responsible for repaying the debt, they benefit from the credit card’s positive payment history.

Suppose the primary cardholder fails to make payments or accumulates high debt. In that case, the authorized user’s credit score can be negatively affected, even though they have no legal responsibility for the debt itself.

4. How Did This Concept Originate?

The concept of adding authorized users to credit accounts became widespread after the Equal Credit Opportunity Act (ECOA) of 1974. This law required creditors to report authorized users to credit bureaus, enabling them to benefit from the primary cardholder’s credit history.  While the ECOA wasn’t designed solely to assist women, it provided a significant boost for married women who were often added to their spouse’s credit cards. 

Over time, this practice expanded, with individuals using “credit piggybacking” to buy tradelines from strangers, using this method to improve credit scores, even though its ethics and legality remain debated.

Also Read: Does Credit Counseling Hurt Your Credit Score

Are Authorized Users Responsible for Debt?

When added as an authorized user on a credit card, you are not legally responsible for the debt. The primary cardholder is the one accountable for repaying the balance. However, as an authorized user, you can benefit from the credit history associated with the account, which may improve your credit score if the account is well-managed.

1. Legal Liability Breakdown

• Primary Cardholder: Legally liable for the debt. If payments are missed or the account defaults, the primary cardholder's credit is affected, not the authorized user’s.

• Authorized Users: Do not share financial responsibility. They benefit from the account’s credit history but are not legally bound to the debt.

  
  

2. Exceptions to the Rule

• Fraudulent Use: If an authorized user makes unauthorized purchases or engages in fraud, they may face legal consequences.

• Misuse of the Card: If an authorized user mismanages the card, the primary cardholder’s credit can be negatively impacted.

• Unusual Agreements: In rare cases, special arrangements might make the authorized user financially responsible, but this is not common.
  

Example: Teaching Credit Responsibility

A parent adding a child to their credit card helps the child build credit without sharing debt responsibility. The parent remains responsible for the debt, but the child benefits from the credit history. 

If the parent mismanages the account, it can negatively impact the child’s credit, even though the child is not liable for the debt.

Also Read: How to Qualify for a Debt Consolidation Loan with Bad Credit

Now, let’s explore how being an authorized user can influence your credit score, both positively and negatively.

How Being an Authorized User Impacts Credit Scores

Being added as an authorized user to someone else’s credit card can have a significant impact on your credit score, both positively and negatively, depending on how the account is managed. 

Below are two tables to help clarify the positive and negative impacts of being an authorized user.

1. Positive Impacts

Being added as an authorized user can enhance your credit score in multiple ways, especially if the primary cardholder maintains a positive credit history. Below are the key benefits:

Impact	Description	How It Affects Your Credit
Building Credit History	Being added as an authorized user allows you to benefit from the primary cardholder’s established credit history.	It can help individuals with little or no credit history by quickly boosting their credit score.
Improved Credit Utilization	When added to a card with a high limit and low balance, the utilization rate improves.	Helps to lower the credit utilization ratio, which is a key factor in your FICO score (accounts for 30%).

2. Negative Impacts

On the flip side, some potential risks come with being an authorized user, especially if the primary cardholder mismanages the account. Here are the negative consequences:

Impact	Description	How It Affects Your Credit
Late Payments and High Balances	Missed payments or high balances by the primary cardholder can affect the authorized user’s credit score.	Even though you’re not responsible, late payments or high balances can lower your credit score.
Account Mismanagement	If the primary cardholder mismanages the account (maxing out limits, missing payments), it impacts the authorized user.	Poor management can harm your credit score through negative reporting on the account.

Reporting to Major U.S. Credit Bureaus

All credit accounts, including those of authorized users, are reported to the major credit bureaus. When an authorized user is added to an account, the payment history, credit utilization, and credit limit of that account appear on their credit report. 

This means the account is treated like any other line of credit in terms of building credit or affecting credit scores. The same rules apply, meaning that the way the primary cardholder handles the account directly influences the authorized user’s credit.

If you’re looking to take control of your financial future and navigate the complexities of credit, Shepherd Outsourcing can help you with expert debt management strategies. Contact us today to learn how we can negotiate better terms, reduce your debt, and put you on the path to long-term financial stability.

We’ll now discuss the advantages of adding authorized users to a credit card account and how it can benefit both the primary cardholder and the authorized user.

Benefits of Adding Authorized Users

Adding authorized users to a credit card can offer significant advantages, particularly for building credit and accessing rewards.

1. Building Credit History

Authorized users can establish or improve their credit scores by benefiting from the primary cardholder’s positive payment history. This is especially useful for those with little or no credit history, such as young adults or individuals new to credit.

2. Access to Credit Without Liability

Authorized users gain access to the credit card without being legally responsible for the debt. This allows individuals to benefit from the card’s limits without worrying about making payments.

3. Potential Rewards Without Owning the Account

Authorized users can enjoy rewards like cashback or travel points, even though they don’t own the card. This offers the benefit of rewards without the liability.

Also Read: What is a SoFi Debt Consolidation Loan

Risks for Authorized Users

While there are benefits, there are also risks when being added as an authorized user.

1. Damage to Credit Scores

If the primary cardholder mismanages the account, late payments or high balances can lower the authorized user’s credit score, even though they aren’t legally responsible for the debt.

2. No Legal Recourse if the Primary User Defaults

Suppose the primary cardholder defaults on the debt. In that case, the authorized user has no legal responsibility for the debt, but their credit can still be affected by the missed payments or collections.

3. Emotional or Relational Risks

Sharing credit can cause emotional or relational strain, especially if the authorized user misuses the card or financial disagreements arise between the parties.

Here are some strategies to protect yourself and ensure that being an authorized user positively impacts your credit.

How to Protect Yourself as an Authorized User

Being added as an authorized user can help build your credit, but it also comes with risks. To protect yourself and ensure the account benefits your credit score, it's crucial to take proactive steps.

1. Monitor Account Activity Regularly

To safeguard your credit, it's essential to stay on top of the primary cardholder's account activity. Regularly check for any late payments, high balances, or any unusual charges. 

You can access the credit card’s online portal or request paper statements to stay updated on the account’s status.

2. Set Personal Limits or Request Alerts

Consider setting personal spending limits or requesting spending alerts from the cardholder. This ensures that you’re aware of any major purchases or changes in spending patterns, helping you avoid potential issues. 

Some credit card companies offer mobile alerts for transactions, making it easier to stay in control.

3. Understand the Primary User’s Financial Habits

Before agreeing to become an authorized user, have an open discussion with the primary cardholder about their financial habits. 

Ensure that they manage the account responsibly, making timely payments and maintaining a low credit utilization rate. If they have a history of missed payments or high balances, reconsider becoming an authorized user.

4. Discuss Removal Strategies if Negative Impacts Arise

If the account starts to impact your credit score negatively, it’s essential to have a removal plan in place. Discuss with the primary cardholder the steps to take if problems arise. 

Knowing how to remove yourself from the account or request a credit limit reduction can prevent further damage to your credit score.

How to Remove an Authorized User from a Credit Account

If being an authorized user on someone else's credit card no longer suits your needs or if the account begins to affect your credit negatively, it’s important to know how to remove yourself from the account properly.

1. Step-by-Step Process for U.S.-Based Credit Cards

The process for removing an authorized user from a credit card account is straightforward but requires action from the primary cardholder. Here’s what you need to do:

• Contact the Credit Card Issuer: The primary cardholder must reach out to the credit card issuer either online or via customer service to request the removal.

• Provide Identification Information: The cardholder will need to provide identification information, such as your name and account details, to process the removal request.

• Wait for Confirmation: Once the request is submitted, the card issuer will remove you as an authorized user. You will receive confirmation from the card issuer, usually within a few business days.

  
  

2. Immediate vs. Delayed Impact on Credit Reports

When removed as an authorized user, the impact on your credit score might not be immediate. It can take some time for the change to be reflected in the credit bureaus' systems. Here’s what you should expect:

• Immediate Removal: Your name will be removed from the account, but it might take several weeks for the update to show on your credit report.

• Delayed Impact: Once your status is updated, you may see a shift in your credit score due to the loss of the account’s credit history. If the account had a positive impact on your score, the removal might cause a temporary dip in your credit.
  

3. Ensure the Credit Bureaus Update the Removal Correctly

After the removal, it’s important to check that the credit bureaus reflect the change correctly. Sometimes, errors can occur, and the account may still appear on your report, affecting your credit score.

• Monitor Your Credit Report: Regularly check your credit reports for discrepancies. You can get a free report once a year from each of the three major credit bureaus at AnnualCreditReport.com.

• Dispute Incorrect Information: If the account remains on your report or the removal is not reflected, file a dispute with the credit bureaus to have the information corrected.
  

Conclusion

Understanding the responsibilities and impact of being an authorized user on a credit card is crucial for managing your financial health. While being added as an authorized user can build credit history and improve your credit score, it also comes with risks, such as the potential for negative impacts if the primary cardholder mismanages the account.

Whether you're looking to improve your credit score, build credit history, or avoid financial pitfalls, it's essential to understand how your account is managed and stay informed about any changes. 

Always make sure you're protecting your credit and have a plan in place if things go wrong.

If you're looking for expert guidance on managing your finances and improving your credit, Shepherd Outsourcing is here to help. While we don't specialize in credit card debt, we offer personalized debt management and credit strategies to secure your financial future.Contact us today to take the next step.

FAQs

Q: Can an authorized user be removed from the credit card account without the primary cardholder’s consent?

A: No, the primary cardholder has to initiate the removal process. Authorized users cannot remove themselves unless the primary cardholder agrees to take the necessary steps with the credit card issuer.

Q: Will adding an authorized user to a credit card account improve their credit score if the account is in bad standing?

A: No, if the account has a history of missed payments, high balances, or defaults, the authorized user’s credit score can be negatively impacted. The primary cardholder must manage the account responsibly.

Q: Can an authorized user see the account balance and transactions on the credit card? 

A: It depends on the card issuer and the primary cardholder’s permissions. In many cases, the authorized user can see transactions but may not have full access to all account details unless they are also a joint account holder.

Q: Does being an authorized user count as credit for applying for loans or other credit?

A: Yes, being an authorized user can positively influence your credit history, which may help with loan or credit card applications. However, lenders may consider the primary cardholder’s account management as well when making their decision.

Q: If an authorized user’s credit score improves, can they remove themselves from the account without losing that boost?

A: Yes, but once removed, they will no longer benefit from the primary account’s credit history. It’s important to note that the credit score improvement gained from being added may begin to decrease if they don’t have other credit-building activities to continue boosting their score.