5 risks of add-on credit cards every borrower should know

As credit card usage in the country continues to surge, add-on, i.e., supplementary credit cards commonly issued to family members, may seem attractive. Still, before applying for such a credit product, it is prudent to understand the key risks associated with it. Here are five risks of add-on credit cards every borrower should know before going ahead with them:

I. Shared liability and credit score impact

In all such cases, the primary credit card holder is legally liable for all spending on the add-on credit cards, including defaults or delayed payments. Poor or irresponsible credit behaviour by the add-on user can bring down the primary holder’s credit score, as all usage is added and consolidated under one single account.

II. Overspending risk

The add-on credit cards can provide a false sense of ‘free money’ for cardholders. This might result in secondary users overspending on lavish and unnecessary products and services, such as expensive clothing, watches, and travel, leading to unmanageable consolidated bills. That is why, without rigid spending limits or curbs, the primary holder may lose control over how much is being charged.

III. Additional costs and charges

There are financial institutions that impose extra annual fees and renewal costs for add-on cards, raising the overall credit card expense. Standard credit card penalties, such as late payments, over-limit charges, also apply to add-on spend, which again comes back on the primary cardholder.

IV. Limited control and misuse potential

Given that the primary credit card holder always controls and receives the consolidated statement, they may not always control how the add-on card is used. This increases the potential of misuse and financial losses.

There is also the potential of financial fraud, because add-on users are generally trusted family members, they might be less careful, or worse, the card might be abused in their absence by someone else. Do keep in mind that in such cases, relationships can also be permanently damaged, as trust is broken.

V. Regulatory and reporting issues

According to norms, banks must issue add-on credit cards only after proper due diligence; still, misuse or lack of clarity on reporting can arise. Some add-on cards may not be accurately reflected in the credit bureau records of the add-on user, leading to errors and ambiguities in credit reporting.

In conclusion, add-on credit cards provide users with comfort, flexibility and convenience, especially for closely related family members. Still, to harness these benefits without falling prey to risk, one should set clear spending limits, monitor transactions consistently and communicate responsibly. Acknowledging and understanding these pitfalls can help both primary and add-on cardholders make sensible spending decisions.

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