When you want to share credit, there are two main options at your disposal -- either adding that person as an authorized user to your own account or opening a joint account together. Keep reading to learn how each option works.
If you already have a line of credit such as a credit card, adding someone as an authorized user is easy. Most of the time, you can add an authorized user to your credit account yourself with online account management tools. If not, you can call your card or credit issuer and ask them to add an authorized user for you. Either way, your authorized user will get their own credit card and access to your line of credit.
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In a lot of ways, adding an authorized user to your existing credit card benefits your authorized user more than it benefits you. If you add someone who is struggling to build credit, for example, letting them become an authorized user on your account can help thicken their credit report over time.
Further, the fact that they have their own card doesn't actually mean they're responsible for repayment. When you add an authorized user to your own account, you are still responsible for repayment, no matter what. So, if your authorized user runs up a balance and flakes out, your credit will suffer right along with theirs if your account goes into default.
While adding an authorized user sounds risky, there are times when choosing this route makes plenty of sense. For example:
At the end of the day, adding an authorized user can benefit both parties -- provided each individual uses credit responsibly. If your authorized user runs up a balance, they won't pay off. However, you'll be on the hook to repay their charges.
Since many creditors won't let you add a joint account holder to an existing account, you'll need to open a new line of credit if you want to hold it jointly with another person. Still, this option can be beneficial depending on the situation.
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First, opening a joint account means you're both equally responsible for repayment. If you want the person you're sharing credit with to have "skin in the game," opening an account jointly is a superior choice in that respect.
By learning to manage credit together, you can also boost your communication skills. With a joint balance, you must repay together; you'll need to talk about money often. Over time, this can help you better handle your finances.
On the other hand, opening an account jointly can have its drawbacks. For starters, many card issuers won't allow you to open joint accounts at all. Because of this, your choice of banks and card issuers for a joint account might be limited.
Further, you'll still be on the hook if your joint account holder uses credit irresponsibly. And if your partner or joint account holder stops caring about their credit, you'll need to keep up with payments to avoid destroying your own score. And if your joint account holder dies, you'll be on the hook to repay their charges, regardless of what they are.
Here are a few instances where opening a credit account jointly makes sense:
[This article was first published on The Simple Dollar in 2020. It was updated in March, 2022.]