Joint credit is credit issued to two or more people, based on their combined incomes, assets, and credit histories. Joint credit can be issued to multiple individuals or organizations. The parties involved share responsibility for repaying the debt.
Breaking Down Joint Credit
Types of joint credit include:
- Co-borrowing: In this scenario, a new full partner would be added to an existing account. The additional party filled out or at least signed a credit application and now shares charging privileges. Instead of being 50% responsible for the bill, however, the co-borrower is 100% responsible.
- Co-signing: As with a co-borrower, an additional party is signing on to be responsible for 100% of the bill; however, the loan or credit account is not accessible to the co-signer. The co-signer may or may not have access to account information at all. If the original signer defaults on the loan or account, pays late or misses a payment, this negative history could be added to the co-signers existing credit history.
- Adding an Authorized User: In contrast with a co-signer, an authorized user can use existing available credit on an account but has no financial liability to repay the debt. An initial party has already filled out the application, obtained the credit, and is liable for repayment; while an authorized user simply receives charging privileges. Adding authorized users to an existing credit card can help build credit, assuming timely payments. On the other hand, an authorized user can also ruin the original party’s credit score by racking up debt. Occasionally authorized users can get a boost in their own credit score if the original party regularly uses and makes timely payments on the account.
When Joint Credit Becomes a Concern
Two or more individuals may consider applying for joint credit for many reasons, including getting married, co-signing a mortgage, and allowing a child to become an authorized user on an existing credit card account. It is imperative to review all parties applying for joining credit. Combined financial planning will usually affect all parties’ credit scores.
Joint credit can become an issue and concern in divorce proceedings. In these cases, the terms may give one partner responsibility for certain debts and the other partner responsibility for other debts. It is also possible that following divorce proceedings; former partners may still affect one another's credit.
Means of closing a joint credit card account can be difficult, especially in the case of an outstanding balance. Even if an issuer allows a credit card to be closed, the balance usually must still be paid under the original terms. One potential solution includes transferring a portion or all of the balance to a separate credit card.