The world of joint credit can be a little confusing. Mainly because there are different types of
joint credit and each one carries a different list of circumstances and
responsibilities. Before you enter into
the world of joint credit with another person, it will be helpful if you know
exactly what you might be agreeing to. Here is a list of some very important things
you need to know before agreeing to any type of joint credit.
1. There are multiple types of shared credit.
Many people use the term “joint credit” but depending on the
bank or lender’s opinion that can mean a lot of very different things. There are three different types of shared
credit. They are:
Joint Credit:
With this agreement you are a full partner on the account. You filled out or at
least signed a credit application.
What you might not know:
With this type of account you are 100% responsible for the bill (not 50
percent).
Authorized User:
You are able to use the credit, but you have basically no financial liability
to repay the debt. You never filled out or
signed an application. Someone else
filled out the application, obtained the credit and is responsible for the
repayment of the debt; they just gave you charging privileges.
What you might not know: If the account holder doesn’t pay, some
lenders may try to come after you for the charges that you were responsible
for.
Co-signer: You
are signing to be responsible for the entire bill, but the loan or credit
account is in someone else’s name and you can’t use it. The other person will receive the bills, and
you may or may not have access to account information.
What you may not know: If the person that you co-signed for defaults,
pays late or misses a payment, that
information can be included in your credit history!
2. How joint debt is reported on your credit
report.
Understand there is no such thing as a joint credit history. This means the entire account history and balance of the account appears fully on your credit report. It is not broken up to only show what you are responsible for. This means it doesn’t matter who makes the charge or who was responsible for a late payment, both parties are responsible and their credit report will both fully reflect those actions.
3. Divorce courts can’t reassign joint debts.
Two spouses that have multiple joint credit accounts will
have to decide who will be financially responsible for each one of those
debts. This is a stipulation that is
rendered by the divorce courts as part of that process. It however does not change the view of the
account with the creditors. Even though
the court says one party is responsible financially for a debt, if that person
fails to pay, the other person is still liable.
A credit card agreement is between the borrower and the lender, and
divorce courts don’t have the authority to alter that agreement.
4. With joint credit both people are affected
equally.
If a joint credit account is good (low balances, paid off in
full, high credit limit, no late payments), it helps all the parties
involved. But if it’s not healthy (late
payments, rolling balances, maxed out credit line), everybody’s credit suffers.
Final advice: be
careful when it comes to joint credit.
Make sure you understand all the potential ramifications associated with
your involvement in the account before you agree to anything.
