Credit Card Co Signer vs Authorized User: What's the Difference?

Whether you decide to take on the role of credit card co-signer or an authorized user will depend on your personal credit history and your financial goals. If you have a strong credit history and want to help someone you care about to establish or improve their credit, then you may want to become a co-signer. However, if you have limited or poor credit, and your goal is to gain access to credit and potentially improve your score, you may benefit from becoming an authorized user. 

What is a Co-Signer?

If you have poor or limited credit history, you may find it difficult to qualify for a credit card. In this case, you can consider asking a good friend or family member to act as your co-signer. A co-signer is someone who guarantees they will pay off your credit card if you can’t do it. 

As the primary cardholder, if you are unable to pay off the credit card, the co-signer is legally responsible for picking up the tab. From the credit card issuer’s perspective, having a co-signer reduces some of the risks of granting you a credit card since there is backup if you fail to make your payment.

The job of a co-signer is all work, no play. While the co-signer is on the hook if you don’t pay your bill, they typically don’t get issued a physical card, can’t make any purchases on the card, and have no direct access to the account. 

For instance, a parent might agree to co-sign on a credit card application with their child. If their kid fails to pay off their credit card debt, the parent is responsible for ensuring it is paid off. 

How Does it Build Credit?

If you agree to co-sign on a credit card for someone, know that it can affect your credit score. Any activity on the credit card will show up on your credit report, for better or worse. If the primary cardholder makes their payments on time and in full, this can have a positive impact on your credit as payment history is the most important contributor to your credit score.

However, if the primary account holder misses their payments and racks up credit card debt, this can cause your credit utilization ratio to go up and can damage your credit score.

Pros and Cons of Being a Co-Signer

Becoming a co-signer on someone else’s credit card is a big responsibility. Make sure you trust the person you are co-signing for and become keenly aware of the pros and cons before agreeing to take on the cosigner role. 

Pros

• Help someone in need. You may want to use your good credit to help someone you care about build up their credit. Acting as a co-signer might make it easier for them to qualify for a credit card.

• Potential to positively impact credit score. If the primary uses their credit card responsibly, always paying their bills on time and in full, it could improve both of your credit scores.   

Cons

• Financial responsibility. If the primary account holder fails to pay their debts, you’re on the hook

• Can negatively impact your credit score. If you fail to pay off the primary card holder’s debt, your credit score can take a hit. 

• May limit future borrowing. Your debt-to-income ratio is affected by taking on the role of co-signer.

• Limited accessibility. Not all credit card companies allow co-signers. 

• Strained relationships. Acting as a cosigner can take a toll on your relationship with the primary cardholder if they don’t manage their credit card responsibility and keep leaving you to take care of their unpaid bill. 

What is an Authorized User?

An authorized user is a person who is authorized to use someone else's credit card. Unlike a cosigner, as an authorized user, you have no legal responsibility for the credit card. You are authorized to make purchases with the credit card but are not required to make any of the payments, this responsibility is entirely up to the primary account holder. As an authorized user, you may receive your own credit card to use or you might just be authorized to make purchases using the primary cardholder's credit card. 

How Does it Build Credit?

Being an authorized user can affect your credit but only if the card issuer reports authorized user information to the credit bureaus, Equifax and TransUnion. The primary cardholder can reach out to the credit card issuer to confirm whether or not they report authorized users. If the issuer does not report this information, then becoming an authorized user will not affect your credit score. 

If the credit card company does report to the credit bureaus then it is possible to build credit as an authorized user. To have a positive impact on your credit score, the primary cardholder must use their card responsibly. If the primary makes a series of late payments or misses a payment, this can negatively impact your credit.

Pros and Cons of Being an Authorized User

Becoming an authorized user can have several possible advantages but there are also some important disadvantages to consider: 

Pros

• Access to credit. If you have no credit, or a low score, you may have a hard time even getting access to a credit card. Becoming an authorized user is a way to gain access to credit despite your limited or poor credit history. 

• Potential to build credit. If the credit card issuer reports to the credit bureaus and the primary cardholder consistently makes the card payments on time and in full, it is possible to build your credit. 

• Simplicity. For parents that make their children authorized users or partners or spouses who become authorized users on each other's cards, it can make the payment process easier. Rather than juggling multiple credit cards with different terms and payment dates, you can focus on paying off one credit card each month.

Cons

• No positive effect on credit. If the credit card issuer doesn’t report to the credit bureau, then you have no opportunity to build or improve your credit.

• No control. As an authorized user, you have no control over the credit card account. For instance, you can’t request to increase the card limit or add another authorized user. 

• You can damage someone’s credit. If you are irresponsible with the credit card, you can damage the primary cardholder's credit as they are legally responsible for making all of the payments. 

What Is the Difference Between Authorized Users and Co-Signers?

The main difference between becoming an authorized user and a co-signer is in how much responsibility you take on. As an authorized user you are not legally responsible for making any payments on the card. As a co-signer, you are legally responsible for paying off the credit card if the primary fails to do so. 

As an authorized user, you have the opportunity to use the credit card to make purchases. As a cosigner, you typically don’t receive a credit card. You are just there to decrease the risk to the lender and to pick up the financial pieces if the primary doesn’t pay their bill. 

When Should I Choose Being a Co-Signer?

You may choose to become a co-signer if you are someone with good credit who wants to help a friend or family member gain access to a credit card so they can establish or improve their credit. Before agreeing to become a co-signer make sure you trust the person you are co-signing for and understand the responsibility you are taking on. Bottom line, if they don’t pay their bill, you are on the hook. If you are late on a payment or miss a payment, your credit can suffer. 

When Should I Choose Being an Authorized User?

You may become an authorized user if you are struggling to get a credit card because you have yet to build a credit history or you have poor credit. In this case, you can ask a friend or family member if they are willing to make you an authorized user on their credit card. In this scenario, it is the primary cardholder who is totally responsible for paying off the credit card. Before becoming an authorized user, make sure you trust that the primary cardholder uses their credit card responsibly. If they are late on their payments, or miss payments, this can negatively impact your credit score. You should also question yourself to see if you are ready to take on the responsibility of an authorized user. If you poorly manage the credit card, you can potentially damage someone else’s credit. 

What Alternatives to Co-Signers and Authorized Users Are?

There are other alternatives outside of becoming a co-signer or an authorized user, including: 

• Joint account holder. A joint account is when two people sign up for a credit card together. Both people have to go through the credit card application process and both hold equal responsibility for the card and both equally liable for any debt. 

• Secured credit card. If you have no credit or poor credit, a secured credit card is typically easier to obtain than an unsecured card. A secured credit card requires the user to provide a deposit before they are able to use the card. Typically the amount of the deposit (e.g. $500) is equal to the credit limit. By adding a deposit, the risk to the lender is reduced, and therefore, it’s easier to qualify for a secured card. 

The Bottom Line

The roles of credit card co-signer and authorized user are different. As a co-signer, you are essentially lending your good credit to someone you care about to help them qualify for a credit card and grow their credit. Before agreeing to co-sign a credit card make sure you trust the person you are signing for and understand the responsibility you are taking on. As an authorized user, you are using someone else’s good credit to gain access to a credit card and build your credit. With good credit card use, you can help to build your credit score. However, if you mismanage the credit card, you can damage the primary cardholder's credit, and potentially your relationship with them.