If you want to share a credit card with someone, you have two options: become joint cardholders or add the person as an authorized user to an existing credit card. Which one you choose will depend a lot on your relationship with that person — including how much trust you have.
Read on to find out the difference between these two options and which one might work best for you.
Joint Cardholder
If you go the joint cardholder route, you and the joint holder are considered equals. According to Alexander Lowry, a professor of finance at Gordon College, you must apply for the credit card together in order to get a joint account.
“The card issuer will check both people’s credit and income information to approve the application,” Lowry says. “If you’re approved, you’ll both be added to the account and issued credit cards with your names.”
That means you’re both able to charge purchases to the account, sharing the total credit limit. It also means you are equally on the hook for the bill.
So if one person racks up a large balance and fails to pay it off, both cardholders experience the consequences. At the minimum, those consequences include a hit to their credit scores. Potentially, both parties could end up with an account in collections if it isn’t brought back to good standing.
Dan Mahoney, a certified financial planner and president of True Square Financial, says, “A joint cardholder typically is fully liable for paying the bill, even if the other joint cardholder doesn’t pay.”
But it isn’t all doom and gloom. Joint cardholders also reap the benefits of each other’s good habits. Regardless of who sends the check, both cardholders get credit for paying the balance on time. And a strong track record leads to a long, positive credit history for both.
[Read: Best Rewards Credit Cards of 2018.]
One challenge you might run into, however, is that many financial institutions don’t offer joint credit card accounts anymore. The only two major banks that do are Wells Fargo and Bank of America, The Motley Fool reports, which means your options are limited if you do want a joint card.
Why Add a Joint Cardholder?
You can share the responsibility of paying the bill. If you are partly responsible for the household finances and don’t want to be on the hook for expenses alone, adding a joint cardholder is a way to distribute the responsibility more equally.
It simplifies your finances if they’re already commingled. Many couples share checking accounts, savings accounts, loans and other financial commitments, so becoming joint cardholders on a single account is often the convenient option.
If you do find a credit card that offers a joint cardholder option, consider carefully whether you’re comfortable sharing this financial commitment with someone else. “This option ties your finances together tightly,” says Lowry.
Unless you’re in a trusting, committed partnership, intertwining your finances to this degree probably isn’t worth it in the event you have a falling out or the joint cardholder fails to manage the account responsibly.
Authorized User
Authorized users are similar to joint cardholders in that they are able to make purchases on the shared card. The major difference is that they do not have any legal accountability when it comes to paying the bill. “The principal cardholder is the only one legally on the hook for debt on the account,” says Lowry.
[Read: The Best Starter Cards for Building Your Credit.]
Additionally, authorized users can be added and dropped from the account with ease and at any time. “The card issuer will add the new user, no credit check required, and send a card with their name on it,” Lowry says. You can usually add an authorized user through your card issuer’s online banking platform or by calling customer service.
When it comes to credit scores, authorized users work similarly to joint cardholders. Though the card issuer can’t pursue the authorized user for payment, late or missed payments on your part can harm their credit. Most other negative account activity will impact their credit, too.
“It’s a two-way street,” says Lowry. “If you miss a payment or rack up debt, that could be reflected in their credit history as well as yours. So if you don’t trust yourself to build your own credit, you might not be the best person to help someone else build their credit.”
However, some card issuers only report positive activity to the credit bureaus on behalf of authorized users. If you’re concerned about how your behavior might affect your authorized user, be sure to ask what types of account activity are reported.
[Read: Best No-Annual-Fee Credit Cards of 2018.]
Why Add an Authorized User?
You have more control. Unlike a joint account holder, you can add and remove authorized users as needed — the account is always in your name.
You can help a loved one build credit. If you want to give your child a head start on building credit, or simply a way to use credit if they’re not old enough for their own card, you can add them as an authorized user. Similarly, if you have a close friend or family member who is struggling with credit, making them an authorized user can help give their score a boost.
“When you give an authorized user access to your card account, you agree to be responsible for anything they charge on their card,” says Mahoney. “So it is important to set clear expectations and only share your card account with people you trust.”
If you’re worried about your authorized user running up a bill, you can add them to the account but lock up the actual card.
Sharing your credit card with another person is an inherently risky proposition. But if you choose the right person, it can be a win-win.
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Joint Cardholder vs. Authorized User: What’s the Difference? originally appeared on usnews.com
