Credit card authorized users, joint account holders differ

Editor’s note: Today, we’re introducing a new columnist to Opening Credits. Erica Sandberg is a former credit counselor who has turned her attention to providing expert credit and money management advice on TV, in the newspaper and online. Now she’s bringing her expertise to CreditCards.com each week in our Opening Credits Q&A column.

The focus of the column remains the same: It’s still about making sure that you get your credit off on the right foot. So if you’re new to credit or need to start over with credit, please send us your questions.

Dear Opening Credits,
How do you know the difference of whether you are a joint account holder or an authorized user? If someone is simply added you as a user after you have the card, is that an authorized user? And what are their responsibilities — Jacob

Dear Jacob,
I can understand your confusion. While your name appears on that piece of plastic, the type of account it is doesn’t. So think back — way back — to when you first got the card. Do you remember completing an application with a friend or family member? What about giving your income or credit information? If any of that sounds at all familiar, you probably co-signed on the account and are a joint account cardholder. On the other hand, if someone just handed you the card and happily said, “Go forth and charge,” you’re more likely an authorized user.

To know for sure, contact the credit card company and ask. They’ll tell you. Another method is to pull and read your credit report, which is important to do regularly anyway. If the letter “A” appears next to the account information, you’re an authorized user. Spot a “J” and it’s a jointly held account, meaning multiple people (you among them) have co-signed for the card. An “I” represents an individually held account — that means you’re the sole owner.

As an account owner, you may allow any number of people to have charging privileges, and you can add and subtract authorized cardholders at will. Such power!

A common scenario would be if you were a parent and wanted to give a card to your teenage son so he could buy necessary school items. In the highly unlikely event that he were to use it for video games, skateboards and bubble gum, you would be able to revoke the deal with a mere phone call to the credit card company.

If you’re an authorized user, know that you are essentially a guest on the account. You have charging privileges only, even if the bills are mailed to your address and are in your name. After all, since the credit card company did not use your information to determine qualification and acceptance, you don’t own the account and aren’t legally responsible for the owed sum. If you fail to pay, the creditor will expect the owner, not you, to pony up.

So does this mean that as an authorized user you’re off the hook for any debts you incur on the credit card? Not necessarily. Though the creditor can’t sue you for unpaid balances, the kind soul who let you share the account certainly can. But even if the account owner doesn’t take legal action, it’s a sure-fire way to destroy a relationship.

Now, if you discover that you are a co-signer, the situation is pretty different. You and other joint cardholders are contractually obligated to keep the account in good standing. The creditor views you as equal partners and can file a lawsuit against any of you if the account goes into default. Once you co-sign, you can’t be released from the account or give a reckless joint cardholder the boot, either. The account was granted based on the data from all of you, and the creditor won’t distinguish or care who did what.

Because co-signer and authorized user arrangements are collective in nature, they carry a considerable amount of risk to all involved. The credit activity of each cardholder will show up on each person’s credit report, which can be good or bad, depending on the behavior. Maintain low balances and pay regularly, and all involved will benefit. If payments are late or one of you charges above the credit limit, however, the group will suffer the consequences. Therefore, to make it work, each cardholder must be acutely aware of charging and payment activity. This requires a lot of communication!

In the end, Jacob, whatever type of cardholder you are, you have an obligation to pay for what you charge and to manage the account well — a responsibility that is magnified when others can be dramatically affected by your actions.

See related: Authorized user or account holder?, Snooping, arguments go along with joint credit