Authorized cardholders can glean a ton of benefits by using your credit card. It's convenient, they can build up their credit score, and best of all they have access to your money. But, in the end, you as the primary holder will be held responsible for payments.
Do you know what an additional authorized cardholder is?
It's one of the interesting features of credit cards, and that's lacking in many forms of payment. With a credit card, you can add additional cardholders to your account, usually with no extra charge. However, there are some important benefits and drawbacks to doing so.
How additional authorized cardholders work
With most credit card account, you can request additional cards for authorized users such as family members, or in the case of small business credit cards, employees. You will receive soon another credit card with the user's name on it. This user can then make charges to your account, just like you would. However, the authorized user isn't responsible for repayment, which is always the responsibility of the primary account holder.
Furthermore, additional authorized cardholders don't have all of the permissions that the primary account holder has. For example, most credit card issuers will not allow the additional authorized cardholders to redeem rewards, make balance inquiries or order cards for other additional authorized cardholders.
The advantages of having additional authorized cardholders
When you make someone an additional authorized cardholder, you are extending your purchasing power to them. For example, when you make a spouse or relative an additional authorized cardholder, he or she can make their own purchases that you will be paying for, or they can buy things on your behalf. They can also utilize many of the benefits that your card may offer, such as travel insurance or purchase protection policies. Your additional authorized cardholders can do this even if they have no credit or poor credit.
Also, your additional authorized cardholders will have your account appear on their credit reports, which will affect their credit scores. When the primary cardholder manages his or her account responsibly, the additional authorized cardholder's credit can benefit.
The drawbacks of additional authorized cardholders
Since the primary cardholder is solely responsible for the repayment of all purchases, you have to trust your additional authorized cardholders to only make purchaes that you are willing to pay for. If an employee, spouse or other family member decides to go on a spending spree, the authorized cardholder will still be liable for all charges. Certainly, this has been a problem before with couples going through divorce, disgruntled employees, and children who haven't yet become responsible credit card users.
Alternatively, when a spouse is an additional authorized cardholder, he or she may be dissatisfied with the limited authority granted by the card issuer to redeem rewards, make account inquiries, or order other additional cards.
Finally, there are some premium travel reward cards that don't extend all benefits to additional authorized cardholders. For example, airline credit cards may only offer a free checked bag and other benefits to the primary cardholder. Also, many credit cards that offer airport business lounge access will not extend that benefit to additional authorized cardholders. The ones that do will often charge additional fees for each new additional authorized cardholder.
When should you consider ordering cards for additional cardholders
With personal credit cards, you should consider adding additional authorized cardholders only for your spouse or your closest family members. It's almost never a good idea to add friends as additional authorized cardholders.
If you're using a small business credit card, you can consider adding trusted employees as additional authorized cardholders. However, it's always a good policy to make them sign a written agreement indicating what charges they are authorized to make on the company card.
Also, some credit cards offer alerts when additional authorized cardholders spend a certain amount, and some small business credit cards allow you to set limits on employee spending. Enabling these alerts is a good way to be notified when the additional authorized cardholders may not be using the card as you intended.
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