What are the Differences between a Co-applicant and Authorized User?

Wednesday, August 17th, 2022
Updated: August 17th, 2022
The content is accurate at the time of publication and is subject to change.

Reaching your goals alone can be tough. Especially for someone with a limited or bad credit history or a large debt, attaining the next financial milestone may seem out of reach. Adding another person to your account can give you the boost you need.

There are different ways to share a credit account with another person. You can get a new line of credit with a co-applicant or a co-borrower, or you can add an authorized user to an existing credit card (or become an authorized user on someone else’s account).

Sharing a credit account with another person is just as important as the credit line and the interest rate. Therefore, before adding or becoming an authorized user or a co-applicant on a credit card, learn what it means, what the liabilities will be and how it might affect your credit score.

What is a co-applicant?

A co-applicant, also sometimes referred to as a co-borrower, is a person who’s considered along with the primary applicant in the underwriting and approval process for a credit card or other form of financing.

The benefits of applying with a co-applicant

There are several major benefits for you if you have someone willing to be a co-applicant.

Having someone else to back you up when applying for a new line of credit means a better chance you’ll hear that you’ve been approved.

Keep in mind that payment history is the key factor in determining your credit score. Therefore, good financial habits like staying on top of payments on current credit accounts can benefit both of you. But also, if you don’t make payments on time, both of your credit scores can take a hit.

When applying with a co-applicant, a standard credit application is required for both borrowers. The lender or issuer will review the credit scores and credit profiles of both applicants in their approval decision. Generally, the terms of the lending deal are based on the credit information of the highest quality borrower. The more favorable your application, the better terms you might be eligible for.

Having a co-applicant can also result in being approved for a bigger credit card limit, or a more robust line of credit.

The downsides of co-applicant loans

There are also some downsides to applying for a line of credit with a co-applicant.

Your chances of being approved can be hurt if the co-applicant doesn’t have credit as good as yours or if the co-applicant already owes a large debt.

Borrowing money with someone can also strain your relationship.

There is one little tip – when choosing a co-applicant, do not rely on its attractiveness to the issuer and high credit score only, try to select a person that you trust.

Not all credit cards allow applying with co-applicants. But in fact, some major credit card issuers like Wells Fargo and U.S. Bank stay open to adding a co-borrower to your application. If a co-signer is not an option, you can also apply to become an authorized user on another cardholder’s account, or you can apply for a secured credit card.

What is an authorized user on a credit card account?

An authorized user, in turn, is a person who is allowed to make purchases using the primary cardholder’s account. They typically have a personal card with a set spending limit in their name that is tied to the primary account. When it comes to paying the bill, however, the authorized user has no legal responsibility.

The Benefits and risks of becoming an authorized user

There are various reasons for becoming an authorized user.

If you are just starting out building a credit history, or you are trying to rebuild your credit, being an authorized user can help boost your credit score. Once you are added to the account, its entire history will appear on your credit reports if the card issuer reports authorized-user activity.

If the account has been opened for a long time and the primary account holder has been using it responsibly – making all payments on time and maintaining a low credit utilization ratio, it can benefit you greatly.

On the contrary, if the primary cardholder misses a payment or their balance is too high relative to the credit limit, it could hurt your credit score.

Can an authorized user hurt the account owner’s credit? 

By adding an extra person, some primary account holders are pursuing the idea of helping another person get a credit card and build their credit. Parents possibly do that to teach their children how to handle credit card and money properly. Others might want to add a partner to simplify their finances as a couple.

There are generally no particular benefits to the primary account owner from adding an authorized user, but there are some major risks listed below.

When you add an authorized user to your account, you are essentially bear ultimate responsibility for all charges made with the card. Meaning that if an authorized user accumulates a large debt and has difficulties paying his or her credit card bill, the primary cardholder will have to cover it. If you fail to do so, you can end up with damaged credit.

All of these problems can moreover worsen your relationship with the authorized user.

How can you add/remove an authorized user?

Most major credit card issuers allow adding authorized users, but make sure you understand the dedicated policy of a credit card before you apply. Issuers may have rules about who can be added or how old authorized users must be. Some issuers require authorized users to be at least 13 years old and have no defaulted accounts with the bank. Others impose a minimum age of 15 or 16, but there are also some issuing banks that do not impose age restrictions.

Similar to adding an authorized user, a primary cardholder can remove an authorized user from an account anytime by contacting the credit card issuer or by logging into the online account.

Monitor your transactions and credit score

Whether you apply with someone as a co-applicant or add them as an authorized user, it’s also important to check your credit score regularly to keep track of your spending. Keep an eye on your account online and on your monthly statements to ensure you’re not spending more than you can pay off at the end of the month.

Bottom line

If you have no credit history at all, it is worth considering an authorized user option, while if your score is in a bad or limited condition, it is better to find a co-borrower. Regardless of which path you take, co-applicants and authorized users can help you make the next step toward your major financial goal if you choose them wisely. If you’re thinking over getting a credit card with someone, take into consideration the legal liability of paying off the balance and the ease of terminating the credit card relationship to help you make your decision.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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