Authorized users have it good. They get to piggyback on your credit card account, reap the benefits of your favorable credit history and even make purchases without any legal responsibility for paying the bill.
Although you might be happy to lend your coveted status for a while to help a loved one establish good credit, at some point, you might need to remove the privilege and let the user go it alone. If you are ready to cut ties with your authorized user, here’s how to do it.
What Is an Authorized User?
An authorized user is a person you’ve given permission to use your credit card account, according to Mike Kinane, head of U.S. bank cards and senior vice president of consumer lending at TD Bank. “An authorized user receives a credit card with his or her name on it and can use the card just like you can use your primary card,” he explains. Any charges the authorized user makes are added to your balance. However, unlike a joint account holder, authorized users aren’t held liable for paying the bill. Even if you have an agreement with the authorized user, legally that duty falls on you as the primary account holder.
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So why add an authorized user in the first place? Usually, it’s for his or her credit’s sake. Many, but not all, credit card issuers report authorized user account activity to the credit bureaus. Of those that report, some report only positive activity, such as making payments on time, while others disclose both negative and positive activity.
Kristena Johnson, marketing director for The Kay Firm, a credit repair service specializing in serving potential homebuyers, says adding an authorized user can help someone build or repair his or her credit. “In essence, when you make someone an authorized user, whatever you do with the card is copied onto their credit profile,” she explains. “So if you keep your balances low, pay on time and have a lengthy history, you can add someone who has less-than-perfect credit because of missed payments or a short credit history, and now it looks as if they have the same positive characteristics on their credit profile.”
Conversely, if you miss payments or carry a high balance, that can drag down your authorized user’s credit score.
If you’re worried about giving another person access to your account, know that you don’t have to offer your authorized user a physical card for him or her to reap benefits. In fact, Johnson says if you’re simply doing someone a favor and don’t actually want that person to make purchases, then don’t provide access to a card or the card number.
“If you give a card to an authorized user, be careful and set boundaries,” Johnson says.
Reasons to Remove an Authorized User
When done right, adding an authorized user to your credit card account can be a win-win for you both. “A trusted authorized user can be a great way to maximize your rewards earning and simplify your finances with one account for multiple users,” Kinane says. However, there are some instances when you should remove an authorized user from your account. Here are a few:
The user is racking up too many charges. “Remember that an authorized user can use your credit card account to make purchases, but you’re the one that’s responsible for paying the bill,” Kinane says. The last thing you want is a bill you can’t pay. “Plus, if the authorized user spends too much, your credit utilization rate (the ratio of your credit card balance to your credit limit) could go up and negatively impact your credit.” If the authorized user oversteps the boundaries you’ve set, consider removing him or her.
The user is getting his or her own credit card. Because a person isn’t entering into a contract or borrowing money in his or her name, there is no legal minimum age to be an authorized user. Some cards allow authorized users as young as 13, while others don’t institute a minimum age. For that reason, some parents will add their children as authorized users so that even as minors they can get a head start on building credit. However, once your child becomes an adult, he or she will likely want to build credit independently and get a credit card in his or her own name. A young adult may not need authorized user status once he or she has established good credit.
[Read: Best Starter Credit Cards.]
You’ve gone through a breakup. Whether you’re ending a marriage or a long-term relationship, you will want to unmingle any finances with your partner. Remove your partner as an authorized user from any cards so his or her spending and credit activity don’t affect your own.
On the flip side, you might be an authorized user whose credit is being harmed by the primary account holder. If the primary cardholder hasn’t upheld his or her end of the deal, you need to cut your ties to the account.
How to Remove an Authorized User
Adding or removing an authorized user is fairly simple, according to Kinane. Although policies vary slightly by issuer, all you usually need to do is call the toll-free number on the back of your credit card to make the request. Some require additional information, such as the authorized user’s Social Security number. You may be able to remove the authorized user online as well, depending on the issuer.
But what if you’re the one piggybacking and want to remove yourself as a user? Even though authorized users are not permitted to make any changes to the account, most major card issuers will allow authorized users to request their own removal. Usually, you’ll need to call the issuer directly, and you may be required to answer security questions. Some issuers allow online authorized user removal requests.
However, not all issuers empower authorized users to make this type of change. If that’s the case, or if you don’t have access to the security information required to remove yourself from the account, you’ll need to have the primary cardholder make the request instead. If that’s not possible, you can try disputing the account with the three major credit bureaus to have it removed from your credit report. Disputing also may be necessary if you requested a removal with the issuer, but it didn’t come off your credit report.
Consequences of Removing an Authorized User
Removing an authorized user from your account doesn’t have a negative impact on your credit, Kinane says. But it could have a positive impact, if removing an authorized user enables you to reduce your utilization rate.
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Say the authorized user would run up a large balance and max out the card each month. Even if the user paid his or her full share each month, that high credit utilization ratio negatively affected your credit. But with the user removed, you can keep your utilization below the recommended 30 percent of your available credit.
Being removed as an authorized user will have a much more direct and immediate impact on the user’s credit than on yours. That’s because your account will no longer be linked to the authorized user’s credit profile. “If your account has a long history in good standing with low utilization, then removing the authorized user could have a negative impact on the authorized user’s credit,” Kinane explains. On the other hand, if your account has missed payments, a high balance or other issues, removing the authorized user could actually help improve the user’s credit, he says.
One of the major ways removing an authorized user affects the user’s credit is by reducing his or her credit history. If your account was the oldest one on the authorized user’s credit report, his or her credit history will become shorter, which will negatively affect the user’s credit.
Removing an authorized user also affects his or her credit utilization ratio. It immediately reduces the user’s available credit and increases his or her overall utilization, which has a negative effect on credit.
Removing an authorized user can be a big decision, even though the process is fairly simple. Because taking away authorized user status can affect the user’s credit rating — and ability to use the credit card issued in his or her name — notify the user before removing him or her from your account. That way, the user can prepare by opening a new account or simply avoid the embarrassment of a declined credit card charge when the authorized user card no longer works.
More from U.S. News
How Piggybacking Credit Can Boost Your Score
Is There a Right Age for Your Teen to Get a Credit Card?
Joint Cardholder vs. Authorized User: What’s the Difference?
How to Remove an Authorized User From Your Credit Card originally appeared on usnews.com
