Making a grown child, grandchild, niece, or nephew an authorized user on one of your credit card accounts is a good way to help this young person establish good credit. However, there are definite risks involved, so it’s important for Florida consumers to be well-informed before adding an authorized user to any of your accounts.
First and foremost, the potential authorized user must understand that they are accepting a big responsibility. Once they have official access to your account, their actions can affect your credit score. Also, you must establish ground rules early on about spending and making payments. This is, of course, easier for both the primary credit card holder and the authorized user if they both understand how the arrangement works. Every credit card issuer has slightly different rules about adding additional card holders, but there are some basic questions that all Florida residents should ask before making this commitment.
How Florida Users Can be Sure that Adding an Authorized User to a Credit Card Account is the Right Decision
It’s a wonderful thing to help a young Floridian start their credit history, but it should be the right decision for you too. After all, you’ve worked hard to build a good credit score. As much as you want to do this kind of favor for your child, grandchild, niece, or nephew, you don’t want it to end in disaster. This is why you should ask questions that lead to the best decision for everyone involved.
Will the authorized user have to pay an additional annual fee?
It depends on your credit card. Most card issuers don’t charge additional fees for adding authorized users. However, a few of the high-end credit cards are exceptions to the rule. To be safe, check with your credit card company before making any assumptions.
Will you earn rewards for purchases made by the authorized user?
Most credit card issuers issue rewards for all purchases made with a qualifying card, regardless of who makes the purchases. Though, typically only the primary card holder is eligible to redeem and use points or air miles. As a bonus, some credit card companies offer sign-on bonuses to cardholders who add authorized users to their accounts.
Will having an authorized user a credit card account hurt your credit utilization rate?
It absolutely can if you don’t use strategy when it comes to spending and making payments. Chances are, your spending limit won’t increase when you add an authorized user. Plus, this user’s spending counts toward the total utilization rate associated with the card. For example, say you’re a Florida credit card user with a $2,000 spending limit. You use $300 of this available credit, making your utilization rate 15%, which is fine. However, your niece, who is an authorized user, spends $500 on college textbooks. This brings your utilization rate up to 40%, which is a little too high.
Using too much of your available credit hurts your credit score, even if you’re making all of your payments on time. This is, unfortunately one of the biggest challenges that comes with adding an authorized user to a credit card. Yet, two tactics can resolve this issue. First, you must clearly establish how much the authorized user may charge at a time. Second, you and the user should stagger your payments, so that you’re making two credit card payments a month.
How can you effectively keep track of the authorized user’s credit card use?
Some credit card companies list charges made by primary card holders and authorized users separately on statements, but most do not. Therefore, you should make careful notes about your own transactions, and ask your user to keep you informed about their spending. Because you are doing them such a big favor, it isn’t too much to ask your authorized user to send you a quick email or text message when they make a purchase with the card. Knowing what your user charges will also help you spot fraudulent charges if you are ever a victim of identity theft.
Are you willing and/or able to pay off charges made by the authorized user if they overspend?
As much as you want to trust your child, grandchild, niece, or nephew, people make mistakes. Also, events like job losses or sudden expenses make it hard for Florida consumers to keep up with obligations. With these things in mind, it’s important to only accept an authorized user on your credit card if you can afford to bail them out if they get into trouble. Of course, you hope for the best, but planning for the worst is the only way to keep your credit score safe.
Why Florida Consumers Who Add Authorized Users to Credit Card Accounts Should Check their Credit Reports
Speaking of your credit score, having an authorized user on your credit card will make it even more important to regularly check your credit reports. More credit activity means more potential for credit score damaging credit report errors. Also, increased credit card use increases the likelihood of identity theft, which is a huge problem in Florida.
If you do find inaccuracies on your credit reports or fraudulent charges and accounts, call Credit Repair Lawyers of America in Florida. We remove credit report errors for FREE and help with credit restoration after identity theft at no cost to our clients.
The Free and Legal Way to Get Better Credit
Don’t let errors or fraudulent accounts on your credit reports bring your credit score down. At Credit Repair Lawyers of America, we’ve been cleaning up credit reports for consumers since 2008 for free. How do we do it? All of our fees come from the defendants in settled cases. This is why our clients pay nothing for the work we do.
Let’s start the conversation about what we can do for your credit. Set up your free consultation today by calling Attorney Gary Nitzkin at (813) 940-7255 or sending him a message through our contact page.