Credit Cards: Adding authorized users creates liability!

I am sure some of you, as I have, get offers from the credit card companies to add a second (or even more) users to your account to earn more rewards with the card. This creates some problems:

• Trust - you are trusting another person with your account AND your credit history. This can be bad for relationships and your financial health too. You have to be very selective!
• Liability - By adding an "authorized user" you are actually adding them as a joint owner of the account. The account appears on their credit report too. If they don't pay for their purchases the creditor can come after you and vice versa.
• Risk Reduction - The creditor wants you to add users so they have someone else to go after if you do not pay. Since the account is listed on every user's credit report as a joint account they can feel the negative effects of being late. This, in effect, reduces the risk of default to the creditor.

Those are the negative parts of adding an authorized user. Their also are some positives that can come from this situation if done correctly:

• Extra Rewards - This part of their advertising is true. You do earn rewards on their purchases as well as your own. This can add up big over time and is worth it if they are responsible.
• Establishing/Maintaining Credit Score and History - Parents can use this to help establish credit for their kids. This requires a high level of responsibility on the part of the parents and the child but can be beneficial for both in the long term for their credit score. A popular choice is to do this when a child goes to college. Be very clear on the rules!
  
• Limits - Some companies allow you to set a spending limit for each authorized user. This can limit your risk in the event they do not pay. Businesses do this all the time when they give employees a company credit card.

Sharing a credit card account with someone else is a more complicated decision than it seems. Using the guidelines above you can make an educated choice on whether or not to do it. I always recommend they try to get an account of their own first and do this as a last resort.