Monday, October 20, 2014

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Set Your Limits Before Adding A Credit Card User

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Financial experts say it's important to know both the pros and cons when adding an authorized user to your credit card. NY1's Tara Lynn Wagner filed the following "Money Matters" report.

Just because you opened a credit card doesn’t mean it has to be yours and yours alone. There are certain circumstances where you may wish to add an authorized user.

"Their name appears on the card so they can use the card just like any other credit card," says Janna Herron, a credit card analyst at Bankrate.com.

Most of the benefit of this arrangement goes to the secondary party. Let’s say your spouse had previous money problems, perhaps filed for bankruptcy. Getting their own credit card might be difficult. They could get a secured credit card or you can help pave the road to rebuilding their credit by making them an authorized user.

"Because not only are you going on to a real credit card or to an unsecured credit card but you also get the history of payments associated with the card immediately," explains Herron.

In other words, you’re not just sharing your available credit, you’re sharing the benefits of your good behavior.

This can also be a boost to young people who can only apply for credit if they have an income or a parent who is willing to co-sign. However, Herron warns co-signing means your teen is responsible for paying the debt or the consequences.

"If, you know, something happens, the card is charged off and you don't want the creditor going after your child, then you want them to be an authorized user," says Herron.

Of course that means you - as the primary cardholder - will ultimately be on the hook should your authorized user go on a wild spending spree. Herron's advice: Monitor the activity on your card closely and be ready to cut them off if they get out of control.

"If you do see that your spouse or your friend or your son is spending too much money and not really being responsible, you can have them be removed immediately and then you can gain control of the card back," says Herron.

For even more control, Herron recommends finding a card that allows you to set specific limits on how much each authorized user can charge. And keep in mind while authorized users don’t have the power to cancel the card or request additional credit, they can remove themselves from the account at any time.

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