By LOUIS DENICOLA
Are you considering opening a joint credit card? Perhaps you live with a partner, or recently got married and want to use the card to manage and pay for shared expenses. Or, you're a parent who wants to open a joint account with your child, giving him a way to pay for emergency expenses.
While they can be beneficial, joint credit card accounts can also put your finances and credit at risk. Here are four things to consider before applying.
1. The difference between joint account holders and authorized users
Opening a joint credit card isn't the only way to share a credit account with someone. You could also get added, or add someone, as an authorized user to an account.
Joint account holders: When you open a joint account, both parties' financial and credit profiles could determine the application's success and the card's credit limit. You may also both be liable for the debt on the card, regardless of who made the purchases. Also, the issuer generally will report the card's usage and payment activity to the credit bureaus in the same manner for both parties.
Authorized users: This type of user, on the other hand, gets added to someone else's credit card. He may receive a card with his name on it and can make purchases, but the primary account holder is usually responsible for the debt.
Getting added as an authorized user generally doesn't require a credit check and often comes with limited control over the account. For example, authorized users may not be able to request a credit limit increase, close an account, change the billing address or add additional authorized users.
An authorized user's credit could be affected -- positively or negatively -- if the issuer reports the account's usage and payment activity to credit bureaus. The VantageScore 3.0 credit scoring model only includes positive information from authorized user accounts; however, FICO includes both positive and negative information.
Not all credit card issuers offer joint credit cards. Bank of America does, but Chase and American Express don't. However, most major credit card issuers allow authorized users.
2. The effects on your credit
Not everyone is aware of this, but there's no such thing as a joint credit report. As a co-owner of a joint credit card, all the account activity will typically be reported to the credit bureaus as if it's your own.
This could be beneficial to both account holders' credit if they use the card responsibly by paying bills on time and not using too much of the card's credit limit.
But the reverse is true as well. If either of you max out the card or don't pay the bills on time on a joint account, both of your credit scores could suffer.
This may be an accidental result of poor communication, or it could happen if you have a joint account with someone who simply stops making payments without you noticing. Your credit could be hurt, and you might have to fix the other account holder's mistake to prevent the damage from getting worse.
3. Safeguards that you can put in place
There's no great replacement for open communication and a financially mindful joint account holder, but there are a few ways you can try to protect yourself:
1. Have an honest discussion with the other account holder before opening the account to set clear expectations.
2. Create a system to make sure payments are made on time, perhaps by making one person responsible for the bill, or setting up automatic card payments from a joint checking account.
Both cardholders can often set up notifications as well. Issuers offer different options, but often you can receive a text or email alert when a large purchase is made, the card's total balance exceeds a specified threshold, or a bill is due.
4. Alternatives to a joint account
Becoming a joint account holder can open you to significant financial risks. Because of this, Justin Waller, a Certified Financial Planner™ (CFP®) and founder of Waller Financial Coaching, advises against opening a joint credit card account with someone unless you're legally attached to them, such as through marriage -- and even then, he advises you to be careful.
Mark Struthers, CFP® and founder of Sona Financial, shares how a joint credit account with a spouse can lead to trouble.
According to Struthers, people can get spiteful during a divorce and may want to "punish the spouse so badly that they would drive their own credit score down in the get-even process."
Waller says a joint checking account could make more sense for some arrangements, such as roommates, as there's less risk to your credit. Checking accounts generally aren't part of your credit history, so checking account activity typically won't affect your credit score.
However, if you sign up for overdraft protection, which is when you link your checking account to your savings account, credit card or overdraft line of credit to fund your transactions when you don't have enough in your account, this may trigger a hard inquiry, which can affect your credit. In addition, doing so could make it easier for you to run up the bill on your credit card or drain your savings.
Becoming or adding someone as an authorized user could be a better arrangement than a joint account if someone, such as a parent, wants more control over the account. It may also be the only option available from some credit card issuers.
Joint credit cards give both parties control over and responsibility for an account. You can use the card to manage shared expenses with someone else, but you're putting your credit and money at risk. Take steps to put safeguards in place and consider alternatives before rushing into a joint credit card agreement.
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