It’s generous to let your loved ones piggyback on your good credit and make purchases on your credit card, but you might not want to do it forever. Sometimes, dropping authorized users from your account just makes sense.
“It’s not only financial. It’s emotional,” says Richard Rosso, a financial planner at Clarity Financial in Houston. “It’s a very delicate dance between the primary cardholder and the authorized user.” When managing multiple cardholders becomes more trouble than it’s worth, you may want to take a few off your account.
Here are four signs it might be time to drop authorized users from your card.
1. They constantly overspend.
Suppose you’ve added your college-age kids as authorized users, but they spend too much month after month. This could strain your budget and hurt your credit utilization ratio, or the percentage of your credit limit you’re using. Your credit scores – and your kids’ credit scores – may take a hit.
What to do: First, talk with your kids about how much monthly spending is OK, if you haven’t already. Put an agreement in writing or set limits for different users online if your issuer offers this feature. With some banks, you may also be able to set up text and email notifications to notify you of spending on the account.
If overspending continues to be a problem, it may be time to cut them off. To make the change, log on to your online portal and adjust your account preferences, or call or write your issuer. Talk to your kids about your decision, and consider other forms of financial support, like transferring money to their bank accounts every month.
2. You’re splitting up.
After a breakup, it’s easy to forget to remove your ex as an authorized user on your credit card accounts. But if you don’t, you’ll still be liable for any purchases he or she makes with the card, and any activity on the card may still affect both your credit and your ex’s credit. If your ex goes on a spending spree on your account out of spite, you may have a hard time disputing the charges with your issuer.
What to do: Take your ex off your accounts, and ask your ex to do the same if you’re an authorized user on any of his or her cards. Change your passwords to make sure your information is secure. If you have any joint credit card accounts, pay them off and close them.
3. You’re having financial problems.
When you remove an authorized user account, or the authorized user asks the issuer to be removed, the card activity will generally fall off that person’s credit reports completely. But until that happens, any negative information on the account could make it difficult for the authorized user to qualify for new lines of credit, get affordable insurance rates or rent an apartment. As a primary cardholder, those late payments could hurt your credit, staying on your credit reports for up to seven years. Removing authorized users before any damage is done also eliminates the possibility that they’ll add more debt in your name.
What to do: Tell your loved ones that you’re taking them off your card so they know what to expect, and then do it.
4. They are financially independent.
It’s generous to help your kids build credit and make purchases when they’re just starting out, but don’t keep them on your accounts indefinitely. After they have two or three years of positive, independent credit history under their belts, removing them from your accounts probably won’t affect their credit scores as much as it might have if you’d removed them earlier. It could also simplify your finances and, in some cases, lower your monthly expenses.
What to do: Let your kids know that you’re proud of them for what they’ve accomplished so far, from getting a job to building a good credit history. Before taking them off your accounts, give them notice so they can plan for the change and sign up for their own cards.
The Bottom Line
Keeping someone as an authorized user on your credit card can do a lot of good, but it also involves some risk. Limit your authorized users to a trusted few who benefit from the set-up the most – say, your partner and college-age kids – and you can save yourself some headaches later on.
“You have to know the person you’re doing this with,” Rosso says, “and know that you might be left holding the bag.”