Are Authorized Users Responsible for Credit Card Debt?
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Many credit card companies allow cardholders to designate authorized users on their account. This allows children, spouses, family members, and even friends and employees to access the cardholder’s line of credit. This can also help the newly-authorized user build their own credit scores.
While naming authorized users has become a rather popular practice — more than one-third of respondents in a 2010 study by the Federal Reserve had one or more authorized user accounts — it can have advantages and drawbacks for both parties.
Here’s a look at being an authorized user on a credit card account means and how it can impact your financial future, for better or worse.
What is an authorized user?
An authorized user on a credit card account is someone who has been given permission to use the card but isn’t legally obligated to the debt. In some states, however, spouses who are authorized users can be held liable for charges on the cardholder’s account.
Authorized users do not go through any kind of credit check, since they are being added onto someone else’s already-established account. They are essentially sharing credit with the account holder. This can be great for the user if the account holder has a strong history of making payments on time and keeping balances low. That history of responsible credit management may be reported to the credit bureaus in the name of the newly-authorized user. This is how an authorized-user relationship can help build credit.
There are lots of situations where adding an authorized user to an account or becoming one might make sense. Teenagers and young adults are sometimes added to a parent’s account to help them build their own credit score or have access to money when needed. A business owner may add an employee to a company or personal account to make accounting for expenses easier. Spouses and partners may be added to share expenses, help each other increase their credit scores, or to simplify the monthly bills.
Adding an authorized user to an account is relatively easy. First, contact the credit company to find out about its policies, such as a minimum age. Most have some policy to allow one or more authorized users and will issue a separate card in that person’s name. Though the credit company won’t run a credit check on the person you wish to add, it will likely need the user’s personal information, such as name, address, Social Security number, etc.
Can an authorized user be held liable for the cardholder’s debt?
Spouses and legal partners who live in “community property” states may be legally responsible and left wondering how to pay off debt when named as an authorized user, according to Nathan Grant, a credit industry analyst with Credit Card Insider. Generally, though, authorized users are not responsible for the cardholder’s debt.
“However, both parties can have their credit scores impacted negatively by delinquencies, or by racking up a high balance and increasing the percentage of credit being used in relation to the maximum limits,” Grant adds.
Grant advises being cautious when considering becoming an authorized user, making sure the cardholder has a reliable history of paying on time, and keeping low balances. Any past delinquencies on the account could end up negatively impacting your own credit score and leaving you scrambling to get out of debt.
“A good thing to note is that if the account you’re being added to has been open for a long time and has been responsibly paid for years, it can positively impact your credit scores,” he says.
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Are authorized users responsible for debt after death?
If a cardholder dies, an authorized user isn’t usually responsible for the credit card’s debt the way a joint account holder might be. That said, in some states with community property laws, a spouse or legal partner could be responsible for a cardholder’s outstanding credit card debt.
“When a cardholder dies, their estate, if they have one, will first be responsible for the debt, meaning their non-exempt assets, such as cars, property, and jewelry, can be sold to pay off the debt. But this may vary depending on assets and if there is a will that is going to be probated,” says Leslie Tayne, a financial attorney and author of Life & Debt. “This could affect how much inheritance their beneficiaries, such as a spouse or child, will receive. A creditor, though, would have to file a claim in Surrogate’s Court, so it is not automatically just paid.”
Depending on how the cardholder’s estate is set up and how long it takes for their debts to be managed, their credit account could become delinquent. These missed payments could end up having a negative impact on the authorized user’s credit report. It’s important to closely monitor all three credit agencies (Experian, Equifax, and TransUnion) for any changes to your report.
Tayne also says that once a cardholder has died, authorized users should not continue to use their card. In fact, doing so is illegal in most states.
“If the authorized user continues to use the card after the cardholder’s death, it can be considered a form of fraud,” she says. “Additionally, the creditor could sue the authorized user for the entire balance of the cardholder’s debt if the card continues to be used, where the authorized user would otherwise not be responsible for paying off the debt.”
How to handle a bad situation when you’re an authorized user
If the company that issued the card you’re authorized to use makes a practice of adding the account to your credit report, you could be negatively affected by late or missed payments the cardholder makes. In this case, you do have some options.
“Authorized users can file disputes to have late payments the cardholder made removed from their credit report,” says Tayne. “The authorized user should contact all three credit bureaus and inform them of the situation. The process can take some time — typically up to 30 days — but the late payments should be removed.”
Another option is to have yourself removed as an authorized user. This is often as simple as asking the cardholder or card issuer to have your name removed and can take effect within a few days, if not immediately. Once you’re no longer an authorized user, check your credit reports.
“If the card issuer doesn’t automatically request for the account to be removed from the credit reports of the authorized user at that time, you can submit a dispute to the credit bureaus to ask for the account to be deleted,” says Grant. “Keep in mind, however, if the account doesn’t have any negative history associated with it, you may want to keep it on your reports to help improve your credit scores, as long as the card issuer hasn’t already made the request themselves.”
Take your time before deciding to become an authorized user
Being an authorized user on someone else’s credit account can be a good thing for building or improving your credit. But like with anything else in life, it can also have drawbacks. It’s important to remember not to rush into any situation where you’re named an authorized user. Take some time to really evaluate how much you could benefit and with whom your credit scores could be connected.
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