- Understanding Credit Score
- Building Credit History
- Considering Joint Credit
You might be considering joint credit for any number of reasons — getting married, co-signing a mortgage, or making your child an authorized user on one of your credit card accounts. Before you do, review both sides of the joint credit coin to make sure the benefits outweigh the risks. And, above all else, choose your partners carefully; your good credit rating is on the line!
Types of Joint Credit
There are three different types of joint credit, and each one carries different responsibilities—and liabilities. They are:
Joint Credit (Co-borrower): With this agreement you are a full partner on the account. You filled out or at least signed a credit application and you share charging privileges.
You need to know: You are 100% responsible for the bill (not 50%).
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; you may or may not have access to account information.
You need to know: If the person that you co-signed for defaults on the loan or account (fails to pay), pays late or misses a payment, that information can be included in your credit history.
Authorized User: An authorized user is able to use the credit, but has no financial liability to repay the debt. Someone else filled out the application, obtained the credit and is responsible for the repayment of the debt; the authorized user has only been given charging privileges.
You need to know: A benefit of adding an authorized user can be an increase in the monthly usage of your card, which is critical to building credit. With monthly reporting to the major credit bureaus, your Visa builds credit most quickly through your regular use and timely payments.
There are lots of times joint credit can be a helpful financial tool — just be sure you know which kind of joint credit is right for all parties involved.
Being Jointly Accountable
If you share a loan or a credit card with another person, make sure that person is taking action to build good credit, too. Joint credit means joint accountability—each of you is 100% responsible for the entire amount. Any late- or non-payment will affect both of your credit histories.
One of the most common times that people combine their finances is when they get married. Just like getting legally joined to someone in marriage, getting legally joined in debt is a move that requires careful consideration. Bad credit can have devastating repercussions for both parties of a joint credit agreement.
When a joint credit account is in good shape (low balances owed or paid off in full each month, high credit limit, no late payments), it contributes to good credit scores for both of you. But if the person with whom you share a joint account is guilty of poor behavior such as late payments, maxing out credit lines or not paying at all, you not only will find yourself liable for the debt but also your credit score will suffer.
Understand the risks before you co-sign anything and be sure to check your co-signer’s credit history for important red flags that might hurt your good credit rating:
• Abused credit (maxed out or over-limit cards)
• History of missed or late payments
• Lost or stolen cards
• Fraudulent charges
If you're going to take joint responsibility for monetary resources and reputation, it's only fair to make sure both parties share their financial information.
Of all the rituals and traditions surrounding marriage, few are as important as tying the financial knot. Making a vow right from the beginning to build good credit together can be the foundation for a long and happy marriage.
Responsibilities of Shared Credit
Joint credit should be considered an opportunity—to make a couple's finances easier to manage, to help one or both build credit. To make it work, both parties need to know the rules. Standard behaviors that can affect credit scores include:
Payment activity: With 35% of your credit score based on payment history, paying on time is essential. It's also important to monitor activities that can negatively affect your score, like opening new accounts and multiple credit inquiries.
Credit available: The amount of revolving credit available to you compared to what you owe (your credit to debt ratio), accounts for 30% of your credit score. If one half of the joint account is maxing out balances, both parties' credit scores will suffer!
Credit history length: How long you have been using credit is also a factor, comprising about 15% of your total credit score. Ideally, joint credit allows one party with little or no credit history to build on the foundation of their partner's established history of good credit.
Late payments: No more late payments—they are the surest and quickest way to drive both your scores down!
It's not only credit cards, loan payments and late bills that affect your credit rating. Unpaid parking and speeding tickets, even overdue library books are debts that can hurt your credit score as well. Late or missed payments to your gym, or an improperly cancelled membership, can end up being reported and seriously impact your credit score.
With your payment history making up 35% of your credit score, paying your bills—all of them!—on time is always the smart way to go.
- Debt Management
- Managing Your Finances