Credit Card Cosigner vs. Authorized User: What’s the Difference?

Here's the difference between cosigners and authorized users on credit cards and why you should tread carefully with them.

Multiple people can be on the same credit card account when the account has a cosigner or authorized user added to it. But there are big differences between cosigning for a card and being added as an authorized user, particularly as it relates to who can make charges on the account, and who is responsible for paying it back.

Below, we'll explain the difference between cosigners and authorized users, and whether it makes sense to add either to a credit card account.

How credit card cosigners work

Having a cosigner on a credit card account is fairly rare. A card company may require an applicant to get a cosigner when the applicant's income and credit score are not good enough to qualify for a credit card on their own. A cosigner essentially agrees to pay the balance if the primary account holder cannot or will not repay what they have borrowed.

For example, suppose your son is going to college and wants to open a credit card account. The bank might require him to find a cosigner, so you cosign for him. If he makes charges that he cannot repay, you will be responsible for making payments on the card as if it were yours. A cosigner is legally responsible for any debts they sign for.

Cosigning is an incredibly risky proposition. Not only are you legally responsible for how someone else manages their credit card, their account will also appear on your credit report. Thus, if the person you cosign for carries a high balance or pays the bill late, you could see your credit score plummet.  

In an extreme case, by cosigning for a credit card, you might help the applicant qualify for a larger credit line they would never be able to qualify for on their own. Bad things can happen when someone who can't get approved for a $500 credit limit on their own gets approved for a $10,000 limit because they have a high-income, high-FICO score cosigner on the account.

How authorized users work

An authorized user should really be called an "authorized spender." When you add an authorized user to your credit card account, the authorized user will receive their own credit card embossed with their own name that is tied to your account. In effect, when you make someone an authorized user, you are giving them complete access to make charges to your credit card account. However, an authorized user is not responsible for making payments on the balance. The authorized user has the ability to spend, but no obligation to make payments.

Making someone an authorized user on your credit card is giving them access to borrow money in your name with no responsibility to pay it back. If you wouldn't trust someone with complete access to your bank account, you shouldn't add them as an authorized user.

There are some risks for the authorized user, too. When you add an authorized user to your credit card account, all of the history associated with that account will often show up on the authorized user's credit report. This is an advantage if the account has always been in good standing. However, if the account has high balances and past late payments, you could harm someone's credit report by adding them as an authorized user.

Credit card cosigner vs. authorized user simplified

The table below summarizes the difference between cosigners and authorized users on credit card accounts. The primary difference comes down to who can make charges to the account, and who is responsible for paying balances on the account.

A better alternative to cosigning for a credit card

Offering to be a cosigner on someone else's credit card is a nice thing to do, but it subjects you to a lot of risk if the account is mismanaged. Cosigning for a card could make you responsible for thousands of dollars in charges, and potentially tank your credit score. I can't think of a single scenario where I would ever consider cosigning someone else's credit card.

If you want to help someone get a credit card in their own name, there are better options than cosigning for them. Instead, encourage them to apply for a secured credit card, which offer all of the benefits of credit cards (fraud protection, credit score benefits, and even rewards!) with one major difference: You have to put up some cash as collateral to open a secured card.

Because secured credit cards require collateral, they can be issued to just about anyone, even people who have low incomes and terrible credit history. The best secured cards offer credit limits starting at $200 and require deposits as small as $49 to open. Because they report to all three major credit bureaus, secured card users are rewarded for responsible credit use.

After several months of on-time payment history, secured cards can "graduate" to become an unsecured card. It isn't uncommon for applicants to get a $200 secured card, and within one year, have the deposit returned to them and the credit limit increased.

Helping someone open a secured card is much less risky than cosigning for them. Rather than cosign, offer to pony up the $49 to $200 deposit to open a secured card for them. In the worst case, you're only out $200, and you won't have to worry about having someone else's bad financial decisions harm your credit score.

The reality is that a single late payment can tank an excellent credit score by 100 points or more. It would be unfortunate to pay a higher rate on a car loan, or be unable to refinance your mortgage because you were nice enough to cosign for someone else's credit card.

Should you add an authorized user to your credit card?

Adding someone as an authorized user to your credit card account can make sense in a few unique scenarios.

1. You're married to them. Tying the knot means tying your finances together. Realistically, adding your husband or wife to a credit card account isn't really any riskier than having a shared bank account, for example.
   
2. You want to help your kids build credit. My mother was thoughtful enough to add me as an authorized user to her credit card when I turned 18, which put all of her good payment history from that account on my credit reports. But she promptly shredded the card when it arrived. I got all the benefits of her credit history. She got the peace of mind of knowing I wasn't going to spend her into bankruptcy.
3. You get a bonus for it. Some rewards credit cards offer extra points, miles, or cash just for adding an authorized user to an account. It's a nice perk worth capitalizing on if you can, but it doesn't make sense to give an irresponsible spender access to your account for a mere $25 or $50 bonus.