Understanding your credit limit and the impact of adding an authorized user

Quick insights

• While an authorized user does not directly impact credit limit, adding an authorized user may impact the credit history and credit score of both the primary account holder and the authorized user.
• It’s important to understand what an authorized user is before making the decision to add one to your account.
• While irresponsible account management by either the authorized user or primary account holder can have long-term consequences, responsible credit usage can have a positive impact for both parties.

Understanding your credit limit can help you to create a budget and manage your finances. Before adding an authorized user, it's important to understand how credit limits might be influenced by the behaviors of any additional cardholders.

What is a credit limit?

Your credit limit is the maximum amount you can borrow from a line of credit. For example, you may have a credit card that has a limit of $3,000, which is the maximum amount of money you can use on that card.  Here are some key tips about credit limits:

• Credit limits may vary across all lines of credit.
• Your overall credit limit is the total amount across all lines of credit.
• You can find your credit limit on your credit card statement, by logging in to your online banking account or by contacting your financial institution directly.
• Your credit limit is typically listed in the terms and conditions of your loan or credit card.
• Regularly checking your credit limit can be important because issuers may adjust it based on your creditworthiness and spending habits.

Adding an authorized user: the basics

Adding an authorized user to your credit card account is a big decision that may impact your overall credit profile. Let’s start by examining what an authorized user is, how to add one and how an authorized user could impact your credit limit.

What is an authorized user?

An authorized user is someone who has been granted permission to use a primary cardholder’s credit card account but is not legally responsible for paying the bill. This role is distinct from that of the primary cardholder who originally opened the account and holds legal responsibility for making payments on debts incurred. While authorized users can make purchases using this credit card, the primary cardholder is held responsible for paying the balances accrued on the account. Adding an authorized user to an account can be beneficial for building credit history and raising the credit score of the authorized user, but it requires trust and clear communication between both parties to manage the credit wisely.

Does an authorized user impact your credit limit?

The short answer is no; adding an authorized user does not directly increase the total credit limit of your account. It can be helpful to think about an authorized user as a second credit card attached to the same account. Authorized users typically gain access to the same perks and benefits as the primary cardholder, but the total credit limit is shared between both parties. The primary cardholder might consider requesting a larger credit limit after adding an authorized user, but doing so is a choice and is not done automatically. It also may not be approved by the lender.

It's important to communicate spending limits and responsibilities to the authorized user to avoid maxing out the credit limit. Consider setting a lower individual credit limit for the authorized user if your issuer allows it so that you can help maintain control over spending. Remember, the primary cardholder is still responsible for paying off all debt incurred by the authorized user. Any credit score impact from using the account—good or bad—can impact the credit scores of both the authorized user and the primary cardholder.

How an authorized user can impact your credit score

There are multiple factors that can impact your credit score after adding an authorized user. These include, but are not limited to:

• Spending: One of the main ways spending impacts credit score is through your credit utilization ratio. Credit utilization ratio refers to the percentage of your total credit limit currently being used. High spending by an authorized user can lead to credit utilization increases, affecting your credit score. At the same time, keeping a low credit utilization ratio can positively impact the credit score of both users. A credit utilization ratio of 30% or less is recommended, while a ratio of 20% or less is preferred.
• Payments: Another factor that contributes to credit score is payment history. Late or missed payments can lead to credit score decreases, while a history of on-time payments can maintain or increase credit scores. The primary account holder is ultimately required to make the payments and has the ability to impact both their credit score and that of the authorized user.
• Credit limit: While a credit limit does not automatically increase with the addition of an authorized user, either the lender or the primary account holder might determine that a higher credit limit is warranted. However, if the account becomes delinquent after the addition of an authorized user,  the card issuer could lower the credit limit or close the account.

Best practices for managing credit with authorized users

Here are some tips for maintaining or improving your credit score after adding an authorized user:

Set clear rules and expectations for authorized users

To help prevent issues before they arise, you may want to consider using proactive communication and establishing clear guidelines and expectations. These may include:

• Discuss and agree upon spending limits and usage guidelines with authorized users before adding them.
• You may want to consider drafting a simple agreement outlining the responsibilities and limitations for both parties.
• Regularly review the account together to ensure compliance with the agreed-upon rules.
• Educate the authorized user about the implications of irresponsible spending on credit scores.

Monitor spending and manage credit utilization

Monitoring the account frequently can help mitigate risks and maintain a healthy credit score. There are options for monitoring your account and credit score, including manual inspection and use of an online tool or app, like Chase Credit Journey^®.

• You may want to consider signing up for alerts and monitoring services offered by credit card issuers or third-party financial tools to help keep track of spending and account management in real time.
• Setting up alerts for when the credit utilization goes beyond a certain percentage of your credit limit can be useful.
• Regularly review transaction history to ensure all charges are authorized and within agreed limits.

When to reconsider having an authorized user

An authorized user arrangement might not work for everyone. Here are some signs that this might not be a good fit for you:

• If the authorized user repeatedly violates the agreed-upon spending rules.
• When the primary account holder’s credit score has been negatively impacted.
• If financial goals or situations change, making the arrangement no longer beneficial.

Regular evaluations can help decide if continuing the arrangement is mutually beneficial.

Bottom line

Adding an authorized user can be a positive experience for both the primary account holder and the authorized user. While doing so can impact the credit score of both parties, careful and responsible credit management  can help build credit history and improve credit scores. By understanding the ins and outs of authorized users and managing credit wisely, you may be able to build and maintain a healthy financial profile and pave the way for more financial opportunities in the future.