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Are you considering adding someone to your credit card as an authorized user? Doing so is easy, but it’s not a decision to be taken lightly. An authorized cardholder is free to make charges to your credit card account, but only the primary cardholder is obligated to pay off the debt. Before adding someone to your account as an authorized cardholder, here are six things to consider.
1. Ask If You Are Making the Right Decision
Because you will be required to pay for any charges made by your authorized cardholders, you should carefully consider if it is a good idea. For example, you shouldn’t make your friends or roommates authorized cardholders just so that they could make occasional charges to your account. And while it can make sense to add a spouse or an immediate family member, it’s generally a bad idea to add a more distant relative who you may not know as well.
2. Look Into Alternatives
Before giving someone the authorization to make virtually unlimited charges to your account, you should consider some alternatives. For example, you could use your credit card to purchase prepaid debit cards, also called gift cards, from Visa, MasterCard or American Express. These products offer much of the security and convenience of credit cards while allowing you to limit the amount in advance. Prepaid reloadable debit cards are another option that can offer you the flexibility to track purchases and reload funds. However, these cards will offer few, if any purchase protection policies and may have higher fees.
3. Have a Conversation With the Authorized User
Before ordering a card for the authorized user, the two of you should sit down and lay out some ground rules. For example, you should decide what the purpose of the card is and what types of purchases you expect them to make and not make. If you are adding employees as authorized users to your small business account, you may want to have them agree to a policy in writing.
4. Set Limits
Part of your conversation with the authorized user should include limits on the amount you expect the card to be used for. For example, you could tell the cardholder that you don’t want him or her to make any purchases over $50 without your permission, or to agree not to make more than $100 per month in charges. At the same time, you should always be aware that any agreements between your and your authorized cardholders do not affect your obligations to the card issuer. The primary cardholder is solely obligated to repay all purchases, not the authorized cardholders.
5. Tell Them to Inform You If the Card Is Lost or Stolen
Authorized cardholders only have the ability to make purchases, they cannot manage the account in any way. If one of your authorized cardholder’s cards becomes lost or stolen, then the primary cardholder must report it and request a replacement. Therefore, it’s important to inform your authorized cardholders that they need to contact you immediately if they have a problem.
6. Make Them Aware of Any Fees
Authorized cardholders may not be familiar with the terms and conditions of your account. And with young adults who are receiving their first credit card, they might not know much at all about how credit cards work. As a result, you should discuss any fees your card may have, such as cash advance fees and foreign transaction fees. In fact, you may wish to set their card’s cash advance limit to zero if you would prefer not to allow your authorized users to use their card to make costly cash withdrawals.
The Bottom Line
The ability to add someone to your credit card account is a powerful feature, but it’s also one with potential for abuse. By taking a few prudent steps before adding an authorized cardholder, you can be sure that you’ve done everything possible to make this arrangement work.
Remember, before you add an authorized user, it’s a smart idea to see where your credit stands first so you know if anything needs improvement — and whether you can afford to take the risk of adding someone else to your credit.