I have received a recent string of questions related to authorized users, which has highlighted a glaring hole on this website to date. While I do mention the potential benefits to an authorized user’s credit score in my Getting Started Guide, the analysis is limited to a sentence or two – until now.
Today we dive into the somewhat murky world of authorized users and I give my recommendation of when to add – and when not to add – one.
Potentially improve the authorized user’s credit score
Although this practice varies by bank – and there is no reliable “list” out there to track which banks work – the potential benefits are hard to ignore. By adding an authorized user to an old credit card account with a good history of on-time payments, the authorized user may inherit that accounts positive history (or negative, which I cover later).
This means that the authorized user can inherit years and years of good credit history, helping four of the six components of the credit score: average age of accounts, payments history, total number of accounts and utilization ratio. And despite a well-established myth that this no longer works, the practice is actually alive and well.
This potential benefit is most directly realized for children or others without credit history, especially considering that an authorized user doesn’t even need the physical card to realize the credit score benefits. So adding them does not have to come with the headache of wondering what they will do with the card.
Help hit large spends
Another benefit of an authorized user gets back to the basics. Because an authorized user’s transactions show up on the same credit card statement, both user’s combined spend count toward any bonus thresholds.
This is particularly helpful for high spends that are tough to reach on your own, a trend that seems to be increasing per recent credit card deals. That $5,000 in three months tough to reach on your own? Add a trustworthy companion to the account and bonus miles can be had quicker and easier.
Here I should note that while the combined nature of spending is good for hitting the spend, don’t forget to also utilize the combined nature of paying the debt off.
Earn more miles
Similar to the reason above, another natural benefit of an authorized user is the increased earning potential from two users. Authorized users are treated the same as original applicants when it comes to earning miles, so a dollar from either person will earn miles as the card’s terms and conditions stipulate.
For example, if an authorized user were to add $2,000 per month in spending, that’s an additional 24,000 miles per year, of which excludes any bonus categories (e.g. earn 2X points at restaurants). With the recent Capital One Venture card deal, for example, that same $2,000 per month would net 48,000 miles per year, or $480 in miscellaneous travel expenses.
Does not impact ability to get bonuses at later date
This is a big selling point for authorized users, especially in comparison to a joint account where the bonus is applied for both users. To put it clearly, an authorized user can help hit the spend on another user’s bonus without impacting his or her ability to get that same bonus later as an original applicant. This is especially prevalent among couples/partners/spouses that both like to apply for credit cards and earn miles.
For example, a routine practice I notice is spouses switching off on card applications and helping each other hit spends. Once the bonus is met for one applicant, the other applies, thereby ensuring two users are constantly earning miles, both accounts are on one statement, and the bonus offer can be had twice.
Must pay off more debt
One of the biggest benefits to adding an authorized user is also it's biggest drawback: the increased spend. Because while we all could earn millions of miles by spending as much as possible, the important part is paying that debt off.
While this may seem like an obvious point to some, it is still the most contentious point and worth repeating. Anybody that is an authorized user must be considered a person that you would entrust your financial life to. By every legal measure, you – the original applicant – are responsible for all charges incurred by an authorized user.
Fees from adding an additional card
Many banks offer the additional cards to incentive more usage. Banks earn money on each transaction made on one of their cards, and they earn more on a per-dollar basis for rewards cards. But a bank also spends money on the rewards miles as well as physical production of the card.
This is all to give context to the fact that some banks do not assess fees for authorized users, while others do. While the same practice of canceling cards prior to the annual fee can be done with authorized users, if the aim is to help someone's credit score long term then you would need to keep the card long term, fees and all.
If you have a question about a particular card's fee structure, I’d recommend looking at the terms and conditions when applying - any authorized user annual fees will be clearly stated. The terms and conditions can be found on the application page from any of the links in my credit card reviews.
Potentially hurt the authorized user’s credit score
In the same way that being an authorized user can help that person’s credit score, it can also impact the score negatively. If the original applicant did not make payments on time, for example, that would be shown on the authorized user’s new history.
Or, even more common, if it is a charge card – an account that must be paid in full each month – that is being authorized, there is technically no credit line on that type of card. This means the debt-to-credit utilization could be thrown out of whack.
Let me explain. If you pay $2,000 on a charge card with technically $0 in credit line, then you have well over 100% in terms of debt-to-credit – that’s a bad thing. To take this scenario a step further, if the authorized user of the charge card also has a regular credit card line of $10,000 with a $0 balance on, the authorized user’s credit utilization would go from 0% ($0 on $10,000) to 20% ($2,000 on $10,000) by being placed on the charge card's account. Ideally you'd like your credit utilization to fall in the low single digits, so 20% would have a considerable negative impact to this cardholder's score.
This is far and away the most common reason for a drop in credit score related to authorized users, especially relevant to American Express cards that tend to be charge cards.
The Bottom Line
To summarize, adding an authorized user can be helpful in two main ways: to earn more miles or to help that person’s credit score. The latter should be done exclusively on credit cards – not charge cards – with high credit limits and good, long history on the account. And the former should be done with only extremely trustworthy relationships in your life – spouse, partner, and some family members come to mind.
But with all of that said, authorized users are an incredibly powerful way to accrue more miles and potentially help the credit-needy in your life. If you have any additional questions about authorized users and their impacts, just comment below.