The old adage “teamwork makes the dream work” can also apply to building credit.
If you’re finding it difficult to open a credit card without a solid credit history, a co-signer or authorized user account can help. Applying for a card with a co-signer, or getting added as an authorized user to someone else’s account, can help you build credit from scratch or improve a poor credit score. While being an authorized user and adding a co-signer both serve a similar purpose, they each have unique features and drawbacks.
Choose a co-signer if you’re struggling to get approved for a credit card. Get added as an authorized user if your goal is to simply build credit.
Here’s what you need to know about authorized users and co-signers, and how to leverage them effectively to build or rebuild credit.
Credit Card Authorized User Explained
An authorized user is someone who is allowed to use the primary account holder’s line of credit.
“When you add someone as an authorized credit card user on your card, it means that person has purchasing power,” says Katie Ross, executive vice president for American Consumer Credit Counseling (ACCC), a national financial education nonprofit.
“That authorized user gets their own credit card, but the primary cardholder owns the account,” adds Ross. The primary cardholder agrees to allow the authorized user to make any purchases they want using the card, without expressed permission.
However, authorized users don’t have much control outside of making purchases. They aren’t allowed to add other authorized users or apply for a credit limit increase. In many cases, authorized users can’t redeem rewards on their own, like points or miles on a travel credit card.
When it comes to monthly payments and debt, the primary cardholder is the one fully responsible. “If an authorized user runs up charges and can’t pay, the primary account holder will need to pay those charges,” says Amy Maliga, a financial educator with Take Charge America, a nonprofit that provides free credit counseling and debt management services. While an authorized user is not legally responsible for the charges on the card, any unpaid debts can still affect their credit score.
If you’re going to ask someone to add you as an authorized user on their account, it’s a good idea to figure out in advance an agreement that works for both of you when it comes to using the card, paying the balance, and redeeming rewards.
If the primary cardholder falls behind on their payments or exceeds their credit limit, it will have a negative impact on their own credit score. These actions may impact the credit score of any authorized users on the card as well, but it depends on the exact policies of the credit card company.
Credit Card Co-Signer Explained
While an authorized user has the ability to make purchases, a co-signer does not. “A co-signer is someone who pays the balance or debt if the primary cardholder fails to pay it off,” says Ross.
In general, co-signers don’t receive a physical card or a copy of the monthly statements, nor do they have direct access to the account.
The primary cardholder is primarily responsible for paying off the credit card, but the co-signer becomes responsible if the primary account holder does not pay. Because of this, the co-signer’s credit score can be affected if the primary account holder falls behind on their payments.
So, why would someone want to be added as a co-signer to an account?
“When someone is first building credit or trying to rebuild credit following a financial hardship, such as bankruptcy, they may not be able to open a credit card on their own,” explains Maliga. “By co-signing for the loan, the co-signer is agreeing to take over making payments if the primary account holder is unable to pay for any reason,” she adds.
In other words, having a co-signer on a credit card is primarily for the benefit of the primary account holder, rather than the co-signer.
Not all credit card issuers allow co-signers, but if yours does, you’re usually given the option to add one when you first open the account. You’ll need to provide the person’s name, contact information, social security number, and their relationship to you.
One important distinction is that having a co-signer is not the same thing as a joint credit card. “A joint credit card account is one that’s shared by two people. They both get their own card, and they’re both responsible for paying the balance,” says Ross.
Difference Between an Authorized User and Co-Signer
The main differences between an authorized user and a co-signer are their legal obligations to repay the primary cardholder’s debts and their ability to make payments using the card.
An authorized user has their own credit card and is allowed to use the card to make transactions at their discretion. They have no responsibility to repay the primary cardholder’s debts. A co-signer, on the other hand, does not receive their own card, but is responsible for repaying the primary cardholder’s debt if the primary cardholder fails to do so.
The table below shows a comparison of the roles and responsibilities for a credit card authorized user vs. a co-signer:
|Has access to a card and can make purchases toward the account||Usually doesn’t receive their own card|
|Cannot make changes to the account||Cannot make changes to the account|
|Not responsible for debt or missed payments||Responsible for repaying the primary cardholder’s debt if the primary cardholder fails to pay|
|Credit score may be affected by the primary cardholder’s missed payments||Credit score will likely be affected by missed payments|
Which Is Best for You?
To decide whether you should add a co-signer to your credit card application or ask someone else to add you as an authorized user, it’s important to consider your personal financial situation.
If you want a credit card of your own but are struggling to get approved, you might want to consider adding a co-signer. Listing a co-signer with good credit on your application can greatly improve your chances of approval, even if you have little to no credit history.
If your primary goal is to build credit but aren’t sure if you’re ready to take on the responsibility of making payments on your own, becoming an authorized user on someone else’s account might be a better solution. You’ll still be able to build credit without being responsible for the monthly payments. Just make sure that the primary cardholder practices good credit habits like paying their bills on time and keeping a low credit score utilization ratio, otherwise your credit score may be impacted by their actions.
As you weigh the decision, remember that an authorized user and a co-signer on a credit card both carry responsibilities for the people involved, even with friends and family.
“In either case, the parties involved should have a solid, trusting relationship. As a co-signer or authorized user, you can put the other person’s credit and financial security at risk if you are unable to meet your obligations. Any financial arrangements involving friends or family members have the potential to damage those relationships,” says Maliga.
Alternatives to authorized users and co-signers
If you don’t want to get a co-signer or be added as an authorized user to someone else’s account, there are other ways that you can get a credit card without having any credit.
“One way is to open a secured credit card,” says Maliga. Secured credit cards require you to pay an upfront deposit when you apply, and the value of that deposit typically becomes your credit line if you’re approved. If you fail to pay your bills, the card issuer will use your upfront deposit to cover your debts. After a period of good credit behavior, your credit card issuer may let you upgrade to an unsecured card.
You might also look into other unsecured credit cards that don’t require a credit history. These cards are designed to help people build credit and improve their credit scores, and some offer incentives for paying your balance on time each month.
Ultimately, the best way to build credit is to practice smart financial habits. Whether you have a loan, credit card, or other bills, make sure to pay them on or before the due date. Try to make the full payment whenever possible and avoid carrying a balance from month to month. If you’re struggling to make your monthly payments, consider reducing your spending or seeking help from non-profit credit counseling agencies that can help you manage debt and create a budget. Aim to use less than 30% of your available credit limit at any given time; if that’s not possible due to a low credit limit or high monthly expenses, you can pay off your card multiple times a month to keep your credit utilization ratio under 30%.