Authorized User, Joint Account Holder, and Cosigner: What’s the Difference?

By Tiffany Sorensen

There’s a great deal of confusion about what defines an authorized user, a joint account holder, and a cosigner of a credit card account. While the rights and obligations of each may vary between institutions, let’s summarize their general characteristics.

Authorized User

An authorized user may freely use an account holder’s credit card, but he/she is not responsible for paying the bill. It’s fairly common for parents to add their teenage children as authorized users of their accounts; this system allows young people to establish credit and gain access to funds, whether it’s for everyday expenses or emergencies.

As such, an authorized user benefits more than the account holder does. By law, the account holder must pay back any expenses he/she incurs, as well as any expenses incurred by authorized user(s). Although authorized users are usually not liable for credit card debt, in rare cases they have been sued when the account holder defaulted.

In addition, an authorized user’s credit score is affected by the account holder’s management of the account. The authorized user’s credit score will benefit if the account holder frequently pays the bill on time, but his/her score will suffer if the account holder is irresponsible. There’s good news, though: you can easily remove yourself from the account. Consult your lending institution to find out the specifics of your policy.

Joint Account Holder

The joint account holder and the primary account holder share ownership of the account equally. Both parties have charging privileges, and they’re both responsible for paying the credit card bill. This implies that the joint account holder will be liable for debt incurred by the primary account holder, and vice versa. Therefore, the joint account holder’s credit score can be positively or negatively impacted by the primary account holder’s actions. Because of the principle of shared liability, a joint account cannot be closed until all outstanding debts are paid off.

Many couples choose to open joint credit card accounts. A joint account may be the best option for those who share household expenses and those who want to establish credit.

Cosigner

When an individual has a limited or unfavorable credit history, he/she can ask another party to be a cosigner. The cosigner typically has no charging privileges over the account. Rather, his/her duty is to ensure the bill is paid; that is, the cosigner is legally responsible for any and all debts not paid by the account holder.

From a financial perspective, agreeing to be a cosigner is a risky decision. It provides no benefits to the cosigner, and if the account holder defaults, the cosigner’s credit score will be negatively impacted. Nonetheless, a person might agree to cosign in order to help out a close friend or family member. For example, many parents cosign for student loans to ensure their children receive proper educational funding.

Before entering into any financial agreement, be sure you thoroughly understand what it entails. What may seem beneficial could end up harming you. If you have doubts, contact a financial advisor who can clarify the contract’s terms.