Joint credit is a great way to build your credit score. Joint credit card accounts allow you to share a line of credit and the responsibilities that come with it with another person. If you have poor credit or no credit history, this can help you get approved for loans and other lines of credit in the future.
But what is joint credit, and how does it work? For starters, there are a few things to keep in mind when opening a joint account: make sure everyone involved is on the same page about how much they plan to spend and what they will use the card for. It’s also a good idea to set ground rules about who will be responsible for making payments on time and how any late payments will get handled. Read on to learn more about how joint credit cards work and the risks and complications involved.
Key Takeaways
- A joint credit card account is when two are more people are issued credit based on their combined incomes, assets, and credit histories.
- With a joint credit card, everyone on the card is equally responsible for managing the account and its debt obligations.
- While there are many benefits to joint credit, there are also major disadvantages you should be aware of.
What is Joint Credit?
Joint credit is a term used to describe when two or more people are issued credit based on their combined incomes, assets, and credit histories. That means the approval for the credit card will depend on the credit score of everyone involved. Consumers can take out joint credit on many different types of accounts, including mortgages, loans, credit cards, and lines of credit. This can get done in various ways, but the most common is when each person involved submits their personal details to the lender and adds their name on the loan agreement.
In particular, a joint credit card works exactly like a traditional credit card, except you are a co-owner of the card with other people, such as your partner, close friend, or family member. As co-owners, all parties involved would enjoy equal benefits and responsibilities to the card, including access to credit and all account details. When it comes time to repay the debt, everyone is responsible for making sure the balance gets paid off since the legal liability for repayment falls on all joint account owners.
The payment history for the joint credit card will get reported to the credit bureaus and appear in each individual owner’s credit report. In other words, all joint account owners will have their credit scores affected by using a shared card. If everyone pays their bills on time and in full each month while keeping credit utilization low, everyone will be able to build good credit scores. Of course, there are some risks associated with taking out joint credit as well: namely, that if one person defaults on payments or uses too much credit, all parties involved will suffer consequences, including increased interest rates, late fees, and drops in credit scores.
Additionally, having joint credit means all co-owners have equal access to the account. All parties involved can make changes to the account, including adjusting the credit limits, changing mailing addresses, or adding additional users to the card. Given these risks, make sure to set boundaries or rules on card and account usage before applying for a joint credit card account.
Despite the pitfalls, there are many reasons why joint credit might be a good idea. For one, it can help you build your credit score faster if you have little to no credit history or poor credit. And if you do eventually need to take out a large loan or apply for a mortgage, having joint credit could give you an edge if you otherwise would not have qualified for the debt individually. Another benefit of joint credit is that it can make life easier if one person falls on hard times financially. If someone in the group stops making payments, the others can continue making them without penalty and keep their good credit history intact in the meantime.
Types of Joint Credit
Co-Borrowing
A co-borrower is any additional borrower that gets added to an account. Their name will be listed on the credit card application and their credit profile, including credit history and income, will get assessed during the application process to help the lender determine whether the parties involved qualify for the loan. Generally, the loan terms will get based on the co-borrower with the best credit as they will have a lower risk of default from a creditor’s perspective. Under this arrangement, all co-borrowers assume responsibility for the debt and are obligated to repay the loan. For mortgages, the names of all applicable co-borrowers will appear on the property’s title.
Co-Signing
A co-signer is someone who agrees to be responsible for a loan along with the borrower but is slightly different from a co-borrower or joint credit card owner. Usually, co-signing is done when the borrower does not have enough credit or income to get a loan on their own. A co-signer typically has good credit and can afford to repay the loan if the borrower cannot.
Co-signing a loan is a big decision and should not be taken lightly. The co-signer is taking on just as much responsibility as the borrower for debt repayment but does not have access to the account or ownership of the property (for mortgages). Instead, a co-signer vouches for the person applying for the loan and puts their credit on the line. If the original borrower makes a late payment or defaults on the loan, both of their credit scores may take a hit.
Joint Credit vs. Authorized Users
Sharing a joint credit card is slightly different from adding an authorized user to an existing account. With joint credit, everyone on the card is responsible for the debt. If one person doesn’t pay, the other people are on the hook for the whole bill. This type of arrangement can be risky because if something happens to your relationship with that person, you still need to pay off their debt.
On the other hand, authorized users aren’t responsible for debt repayment, nor is their credit evaluated during the loan application process as they usually get added to an existing account. Authorized users have charging privileges, and most lenders will report the card’s payment history to their credit report (though not all will). However, authorized users don’t get any of the benefits of being a cardholder, like increased spending limits or rewards points.
Keep in mind that with authorized users, the original cardholder is the one who will be held liable for repayment. So, authorized users only get access to whatever privileges are given to them by the cardholder, which can get revoked at any time by the primary account owner. But, late or missed payments could affect both the primary cardholder and any authorized users.
Pros and Cons of Joint Credit Cards
Before deciding whether or not this type of arrangement is right for you and your loved ones, be sure to weigh all pros and cons carefully.
Pros
A joint credit card account can be useful if you want to share the responsibilities of card ownership with your partner, friends, or family members. A few advantages of joint accounts include:
- An account owner with lower credit scores or poor credit history can access better loan terms and conditions. If one of the cardholders has a more negative credit history than the others, they can take advantage of the joint account to gain access to better interest rates and higher credit limits.
- A joint account can help everyone improve their credit. If all joint account holders make on-time payments in full each month and keep the credit utilization low, they can build and establish a positive payment credit history for someone who needs it.
- Fewer bills to manage. Consolidating accounts and transactions can make it easier to manage bills each month and help you simplify your finances. Everyone shares the card’s privileges, such as cashback rewards and travel benefits.
Cons
Before opening a joint credit card account, it’s important to understand the impact that will have on your credit as it comes with major disadvantages:
- All account holders are legally responsible for repaying the debt on the card. Even if only one cardholder incurred the debt, everyone on the card will be held liable.
- All account owners’ credit history will get impacted. If a joint account holder racks up a lot of debt on the account or misses a payment, all account owners’ credit scores could take a hit.
- The relationship could get strained due to disputes over the card. A shared account can lead to disagreements if users cannot come to an agreement on how much to spend, who makes the payments, and how the account gets managed.
- Potential for complications due to changes in the relationship. If you get a divorce from your partner or have a fallout with your friend or family member, you will need to figure out what to do with the account. It is also possible that one user could purposely miss payments or make late payments to damage your credit out of spite.
Should You Open a Joint Credit Card Account?
If you are considering opening a joint credit card account, have an open and honest discussion with the co-applicant(s) about the responsibilities, spending habits, credit philosophy, etc. Make it clear that everyone will be legally responsible for paying off the card’s balance and set some ground rules on account usage and management. If a joint credit card sounds too risky or overwhelming, consider adding an authorized user to your card instead. That way, you can maintain full control over the card while allowing the co-applicant to take advantage of the credit.
The Bottom Line
If you and someone you trust are comfortable sharing credit card accounts and promise to share the responsibilities for debt repayment, together you can both unlock attractive terms and conditions and build a positive credit history. But, if there is a possibility that either party will overspend, miss payments, or get into disputes in the future, you may want to consider keeping your accounts separate or using an authorized user arrangement instead.
