Authorized users vs. joint accounts: What's the difference?
When you want to share credit, there are two main options at your disposal -- either adding that person as an authorized user to your own account or opening a joint account together. Keep reading to learn how each option works.
What happens when you add an authorized user?
If you already have a line of credit such as a credit card, adding someone as an authorized user is easy. Most of the time, you can add an authorized user to your credit account yourself with online account management tools. If not, you can call your card or credit issuer and ask them to add an authorized user for you. Either way, your authorized user will get their own credit card and access to your line of credit.
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In a lot of ways, adding an authorized user to your existing credit card benefits your authorized user more than it benefits you. If you add someone who is struggling to build credit, for example, letting them become an authorized user on your account can help thicken their credit report over time.
Further, the fact that they have their own card doesn't actually mean they're responsible for repayment. When you add an authorized user to your own account, you are still responsible for repayment, no matter what. So, if your authorized user runs up a balance and flakes out, your credit will suffer right along with theirs if your account goes into default.
While adding an authorized user sounds risky, there are times when choosing this route makes plenty of sense. For example:
- Making your child an authorized user can help boost their credit. Generally speaking, your child needs to be over the age of 16 to become an authorizer user. However, once they reach that age, you can help them build credit by adding them as an authorized user to your account.
- Adding an authorized user can be useful if you commonly split expenses with someone. If you share expenses with someone regularly, adding them as an authorized user to your account might make sense. With all of your shared expenses on one bill, you can track them in one place.
- Married couples or partners who share expenses can benefit. Married couples and partners who share expenses anyway can benefit from adding each other as authorized users on their accounts. Not only does becoming an authorized user simplify things, but it makes tracking your expenses, and credit card rewards easier too.
At the end of the day, adding an authorized user can benefit both parties -- provided each individual uses credit responsibly. If your authorized user runs up a balance, they won't pay off. However, you'll be on the hook to repay their charges.
What happens when you open a joint account?
Since many creditors won't let you add a joint account holder to an existing account, you'll need to open a new line of credit if you want to hold it jointly with another person. Still, this option can be beneficial depending on the situation.
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First, opening a joint account means you're both equally responsible for repayment. If you want the person you're sharing credit with to have "skin in the game," opening an account jointly is a superior choice in that respect.
By learning to manage credit together, you can also boost your communication skills. With a joint balance, you must repay together; you'll need to talk about money often. Over time, this can help you better handle your finances.
On the other hand, opening an account jointly can have its drawbacks. For starters, many card issuers won't allow you to open joint accounts at all. Because of this, your choice of banks and card issuers for a joint account might be limited.
Further, you'll still be on the hook if your joint account holder uses credit irresponsibly. And if your partner or joint account holder stops caring about their credit, you'll need to keep up with payments to avoid destroying your own score. And if your joint account holder dies, you'll be on the hook to repay their charges, regardless of what they are.
Here are a few instances where opening a credit account jointly makes sense:
- You're a married couple who wants joint liability for charges. If you want your partner to be as liable for charges as you are, opening an account together from the start is a smart move.
- You both want joint responsibility. Where being an authorized user on someone else's account can be convenient, it doesn't come with the same responsibility. By opening an account jointly, on the other hand, you'll be able to share the responsibility and build credit together.
[This article was first published on The Simple Dollar in 2020. It was updated in March, 2022.]