Summary
Pros
- No need to open multiple/redundant lines of credit
- All users can build credit history/score
- Spending by different users can be used to accumulate points/cash back on a single account
Cons
- Primary account holder is liable for all charges
- Can negatively impact all users' credit history/score
- Moral hazard; authorized users are not ultimately responsible for charges
Plastic > Paper for spender ROI
Introduction
The reason I began looking into adding authorized users on my credit card account was because Costco only accepts American Express credit cards, yet doesn't allow non-members to pay for purchases. Thus, even if I'm standing next to my mom at the checkout, they won't allow me to pay for our purchases (and thus get the reward points/cash). Since my mom doesn't have an American Express card, she instead has to pay by debit card (limited rewards, if any), or cash.Where there's a will, there's a way, and I found out that it is possible to add authorized users to my credit card accounts. Each user will get their own card with their name on it, and will not necessarily have to impact their own credit score by applying/carrying for too many credit cards since only I will be responsible for the balance.
Costco only accept American Express, PIN-based debit cards, Costco cards, cash, checks, and EBT cards, and only members may pay for items. This policy is what prompted my research into authorized users.
Discussion
Credit cards have allowed primary account holders to add authorized users for quite some time. In theory it sounds like a great idea: you can allow the people you trust to help you earn rewards, and the credit card companies get more revenue from all this spending.
Before adding an authorized user, I cannot stress enough how important it is that you trust this person. At worst, be prepared to cover all bills he or she might run up on your account.
Other reasons to add an authorized user to your account is to help them (re)build their credit—if FICO will also track this account under the authorized user if they provide their social security number when you add them to your credit card account. And, for younger users, it may be a good way to give them access to emergency funds.
On these same topics, there are quite a lot of reasons why adding authorized users to your credit cards can be a bad idea. While everyone's credit can be built up by responsible credit card usage, one person's mistake can lower everyone's credit. Similarly, mixing money with friends and family can be a disaster waiting to happen when relationships change, or may even be the trigger itself to those changes. My advice is to put a limit on the amount your authorized users can spend (ask your credit card comapny to do this)
Conclusion
There's a lot of pros and cons with adding authorized users to your credit card account. Think long and hard to see if the rewards outweigh the risk.
As much as I dislike not giving a clear recommendation, this is a situation that really will depend on each individual situation.
