Sharing credit card accounts
- Lawsuits involving authorized users and joint account holders are common.
- Credit CARD Act provisions may make these accounts more widespread.
- The liability for payment differs greatly between the two types of accounts.
A generous octogenarian added his domestic helper as an authorized user on his credit card account so she could buy supplies for him and food for her family. "She, in turn, shopped him into the poor house, buying clothes, furniture and jewelry that neither of them can pay off," says William J. Rose II, a Santa Monica attorney who specializes in credit collection cases and is representing the man. "But he's the one in the line of fire."
Rose's client is not alone in his difficulties with sharing a credit card account. Rose says lawsuits involving authorized users and joint account holders are common. And because the Credit CARD Act prohibits people under 21, or anyone unable to establish the ability to pay, from opening a credit card account without a co-signer, more consumers will rely on authorized user status or joint account status to obtain credit, says Guarav Gupta, director of consumer lending and risk at Novantas, a consulting firm for the financial services industry. Here's what you need to know before you share a credit card account.
Authorized users vs. joint account holdersThere are two ways to share a credit card account with another person: You can be an authorized user or a joint account holder. The liability for the payments differs greatly.
"Authorized users piggyback on the credit of a friend or relative," says Cate Williams, vice president of financial literacy for Money Management International, a nonprofit credit-counseling agency. These users are entitled to use the credit extended to the card holder, but have no legal responsibility to pay the bill.
Joint account holders, on the other hand, actually share ownership of the account and both are liable for repaying the debt. A joint account must be opened by the account holders at the same time. "It's literally like a joint liability account," Gupta says. "The advantage is that both credit histories get updated, and both account holders are legally responsible for the debt."
When it worksGetting added as an authorized user on a friend's or family member's account may seem like a no-lose situation. Credit is extended freely, and payment is someone else's responsibility. In some cases, authorized users with limited or bad credit are able to use that status to build their own credit, as the credit history of the account owner can be reported on the authorized user's credit report. (If you're an authorized user, check with the credit bureaus to be sure the card is being reported on your credit report.)