After Lauren and I joined our finances, next up were the credit cards. Lauren was pretty excited to have access to my credit, and I was happy to have someone legally responsible for our monthly credit card balance. Right?
I called up our credit card companies and ask to add Lauren to my account. I received the same question from each of them:
Would you like to add your wife as an authorized user or as a joint account holder?
What exactly is the difference? And which one was best for us? This decision can have a big impact on both partners credit report and credit scores.
Authorized User
- An authorized user can use the account to make purchases but does not share any of the financial responsibility to pay off the card.
Valid authorized users have their data sent to be used in credit reports and calculated in FICO’s credit score. A few years ago, they made changes to their scoring algorithm to only authorized users whom they deemed to be legitimate. Some people were ‘piggybacking’ on account holders that they had no relationship with (very often, a company that charged customers to boost credit scores) to improve their credit scores and increase their credit age.
How does FICO determine who is a legitimate authorized user and who is illegitimate user? Legitimate users include spouses, children, and parents, along with anyone who would have a legitimate reason to share access with the primary account holder.
I have been an authorized user on my parent’s credit card for several years, so my credit age is actually older than I am!
Joint Account Holder
- A joint account holder is equally responsible for the balance of an account and is legally liable for an amount due.
Either Options Is Good
For us, there were only positives to adding Lauren as a joint account holder. If this account wasn’t one that was paid off each month or if Lauren already had several credit cards, we probably would not have added Lauren so that it would not negatively impact her credit score or credit report.
I’ve wondered the difference as well. Great post!
This is very good advice! Just be careful before entering into either type of arrangement. I got burned once when my partner opened a joint account in our names.
When we were considering getting a joint or authorized user, they said that the join could tie our credit scores together. Since my wife has a really high credit score, we didn’t want to risk lowering her score a little bit at the cost of boosting mine a bit. Mine is still a good score, but not over 800. We figured in applying for a loan later it would help us more to keep hers as high as possible.
It would be rather scary to have an irresponsible authorized user on the account! Something people should be careful about!
We are joint account holders on everything just so there is no huge pause on anything if one of us dies. Plus we both wanted our credit to build up together. But overall, I doubt it will matter long-term.
Authorized user, joint account holder and beneficiary, I consider these three as must have’s for every family.