Add-on credit cards: Meaning, benefits, risks, and how they work

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An add-on credit card is literally a supplementary card that is issued under the main cardholder's account. Banks typically enable family members such as spouses, above-18-year-old children, or even parents to have these cards. The add-on card shares the same credit limit with the main card and the charges are consolidated into one statement. Despite being handy and providing wider access to credit, the onus of repayment remains only with the principal cardholder.

Benefits of add-on credit cards

Accessibility is among the biggest advantages. Add-on cards grant financial freedom to dependents, like college kids or elderly parents, without a secondary credit history or approval process. They also allow families to consolidate bills into an account, which makes it easy to track family expenditures. Most banks provide the same benefits—cashback, rewards points, and discounts—to supplementary card users, thus enabling families to earn rewards more quickly. Banks also sometimes forgo the joining fee or annual fee for a supplementary card, making them a cost-effective option.

Risks and negatives to watch out for

While add-on credit cards are convenient, they have risks too. Since the main cardholder is held liable for everything, negligent spending on an add-on card can lead to more debt and fines. Also, since the joint credit limit is shared, frequent use by add-on members may reduce the primary cardholder's own usage. A further drawback is that add-on cards hardly ever establish an independent credit history for the secondary cardholder, limiting their ability to build stand-alone creditworthiness in the future.

To whom should an add-on credit card be selected?

Add-on cards work best in open families where there is good communication regarding money. They could benefit parents who have to pay for their children's expenses in a managed manner or who have to combine and share costs better. However, they could be unsuitable in the event that overspending is a problem, no repayment habit exists, or the primary cardholder has a problem with debt.

How to use add-on credit cards responsibly

If you decide to issue an add-on card, set ground rules for use. Look at the consolidated statement periodically to identify abnormal spending patterns. Where possible, request banks to set limits on add-on cards to prevent abuse. Request supplementary users to utilize the card as an emergency or a planned purchase tool and not for general expenditure. Payment on time is of critical importance, as delay adversely impacts the credit score of the primary cardholder.

FAQs

1. Is the add-on credit card issued with a separate credit limit?

No, the add-on cards share the same credit limit as the main card. The combined usage on all of the cards cannot be more than this limit.

2. Can add-on cardholders build their own credit history?

Generally not. Since the responsibility lies with the main cardholder, the add-on user's purchases don't generally enter into their own credit report.

3. Is there any age restriction for add-on credit card holders?

Yes, add-on cardholders should be 18 years or older in most banks. Children typically cannot be provided with supplementary cards.