Can credit card companies sue an authorized user for credit card charges or credit card debt? Credit cards can be applied for by a single user or by multiple users via a co-application. Authorized users can also be added to the credit card either at the time of the application or at some future point. The responsibility of each party varies to some extent if a debt goes unpaid, but ultimately everyone can be sued for their own charges on the credit card.
The Difference between a Co-Applicant and an Authorized User
A co-applicant is a person who applies and signs for a credit card in unison with you under a joint agreement. In this circumstance, both parties are held equally responsible for all charges and all debts accumulated on the account. If a primary cardholder defaults on the credit card payments, then the co-applicant, or co-signor, will be held responsible for those debts, regardless of who was responsible for making the purchase(s).
An authorized user is someone to whom you give permission to use your credit card account to make purchases but is not held responsible for the actual credit card account or sometimes even its associated debt. Typically an authorized user is added at the time you apply for your credit card but can also be added on at a later time.
Reasons to Add an Authorized User to your Account
The reasons for adding an authorized user to your credit card account have changed over recent years. In the past, if someone had a bad credit score they could become an authorized user on someone else’s credit card with good credit history and boost their rating off of this type of piggybacking. When this was done between by a parent to establish a child’s credit history or between spouses it was not a major concern; however this system lent itself to a credit card scam of paying people with good credit scores to piggyback authorized users of bad credit scores for profit. To eliminate the scam, in 2008, FICO stopped calculating authorized user information for credit card scores.
As a side note: Authorized users can end up with poor credit history if the primary cardholder’s credit history becomes negative. If this becomes an issue, the authorized user should have the primary cardholder issue a letter to the credit bureaus stating that the person was an authorized user only and not a guarantor on the account.
Although there is no longer a credit score benefit to authorized users, if a person is unable to obtain his own credit card for any number of reasons, and you are willing to take the financial responsibility of carrying that person, you can add him as an authorized user to your credit card.
Businesses frequently add authorized users to business accounts for convenience sake. A trusted employee who is added as an authorized user to a business account can conveniently make purchases for the company while not being held directly responsible for the credit card account.
Getting Sued as an Authorized User
Every bank that issues credit cards has different terms and conditions regarding authorized users, but in general they hold the cardholder, not the authorized user, responsible for debt incurred on the credit card. However, “additional card member responsibility” usually places financial responsibility on the authorized user for charges made by that person in the event the primary or secondary cardholder fails to pay the debt. For example, if an authorized user incurred $500 of charges on an unpaid debt of $1,500, the authorized user could possibly be sued for the $500.
Furthermore, if an authorized user incurs debts and does not make payments, the primary cardholder himself could always start a lawsuit against the authorized user in an attempt to get judgment for the unpaid debt. If you are adding an authorized user to your account and you are expecting reimbursement from the user, you may want to consider having a legal agreement drafted between you two so that you have supporting documentation in the event of a lawsuit.
Being an authorized user has advantages and risks associated with it for both parties involved. The primary cardholder is first and foremost legally and financially responsible for the debt incurred by the authorized user. The authorized user may be held accountable for his debt incurred, but that scenario is more complex and less often pursued. While the authorized user will not gain a credit score benefit from the primary cardholder, he may actually suffer credit problems if the primary cardholder develops a poor credit history.
Before adding an additional user to your credit card account, consider all your options. You may prefer to add the person as a co-applicant if their credit history will allow it. Otherwise, you may want to have a legal agreement of your own to protect your financial situation. Almost all credit cards allow you to add an additional user, so before you sign up, find out the terms and conditions for that particular bank to make sure the terms are acceptable for your purposes. You can find and compare several cards online now by using our free Credit Card Chaser!
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