What you need to know before giving a secondary credit card to a loved one

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Secondary credit cards can be a great way to keep track of the household budget, but don't expect the risks and rewards to be equally shared between cardholders.

How secondary cards work

Secondary credit cards essentially mimics the primary credit card. In this sense, it's almost as if the primary cardholder was in two places at once with the same credit card.

what you need to know before giving a loved one a secondary credit card

"While the majority of joint leases and mortgages share the responsibility across both people, most credit cards are set up quite differently, where one person holds all the risks, but also reaps the majority of the rewards," says Sally Tindall, research director for RateCity.

"The main account holder is usually allowed to have at least one supplementary person, but any hangers-on don't have to worry about the debt collectors - the onus to meet the repayments is on the main applicant."

Secondary credit cards are distinct from joint credit cards, where both cardholders share the risk.

"Most credit card lenders will only permit you to have a single primary cardholder who must accept responsibility for all the charges to that card.

Benefits of using a secondary card

Tindall says that while the risks of letting multiple people spend like drunken sailors on your credit card are somewhat obvious, if managed properly, there are a handful of potential benefits to be had from secondary cards.

"If you and your partner both have credit cards, cutting back to just one account can reduce the need to pay two annual fees, without sacrificing on the amount of rewards you collect, provided the primary cardholder shares the points equally, of course," she says.

"Having just one credit card can also help families keep better track of the household budget, especially if you have a strict spending limit on the card to prevent multiple blowouts."

So while the primary cardholder carries the risk, they also reap the reward points.

Understand the risks

Secondary credit cards can help families manage the outgoings of the kids or grandparents.

However, while banks may allow secondary cardholders for persons 16 or over, that doesn't mean it's necessarily a good idea.

"If you're looking to teach your kids how to manage credit responsibly, giving them access to a card where they have no responsibility whatsoever has the potential to backfire," says Tindall.

"Young adults who blow a hole in their mums or dads' credit cards aren't going to suffer the consequences from the bank - it's up to the parents to enforce any rules around spending and dish out penalties where required."

By the same token, late payments go down as a black mark against the credit history of the primary cardholder. So, the kids do the crime without doing the time, so to speak. Conversely, they miss the opportunity to build a healthy credit history.

"Secondary cardholders aren't responsible for the money owed on the card, so the credit card isn't typically recorded on their credit file. While this means they can't use it to build up their own credit history, if a repayment is missed, any negative behaviour won't get recorded on their file."

By comparison, joint credit cards are recorded on both applicants' credit files.

Ultimately, says Tindall, how best to teach this lesson comes down to the individual.

"If you've got a credit card, explain to your kids how it works, but also the risks involved," she says.

"Young adults might be turning their backs on credit cards, but they're walking straight towards other forms of credit such as buy now, pay later, which we know can end with people skipping meals and taking out loans just to make ends meet."

Make a plan

"If you are thinking about putting someone on your credit card as an additional cardholder, set yourselves some ground rules first and talk about how and when you will both use the card," says Tindall.

"Before you commit, make sure you set a credit limit you are both comfortable with, and discuss who is in charge of clearing the debt each month, because the last thing you want is to get hit with a whopping great interest bill because both of you thought the other one was paying it."

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David Thornton is a journalist at Money magazine and is one of the hosts of the Friends With Money podcast. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.