Joint credit makes it possible to open an account with another borrower where repayment and responsibility are shared. In the case of joint credit, two or more people apply together for approval and become account owners that are equally responsible for the balance.
There are plenty of excellent advantages to applying for joint credit as it can increase your chances of being approved for the loan or credit card. However, there are a fair amount of drawbacks if being a joint borrower isn’t conducive to your financial goals.
Taking on joint ownership of debt is a decision that needs to be made with the utmost care, so you know exactly what you are getting yourself into before signing off on anything!
What Are Joint Credit Cards?
A joint credit card account allows you to be a co-owner of a credit card with another person; usually, someone close to you like a spouse, business partner, or family member. Joint credit card accounts are less common than they used to be, but several major credit card companies still offer them.
A joint application means that both co-borrowers’ credit report is taken into consideration by the credit card issuer. When you are approved for a joint credit card account, you and your co-applicant become account owners with equal responsibility and liability for the balance and interest you accrue on the card.
Joint Credit Accounts vs. Being an Authorized User
A joint credit card is not the same as adding an authorized user to your credit card. Arrangements for adding authorized users to your credit accounts are straightforward to set up and can be done at any time, whereas it’s necessary to make your credit application with your co-borrower to obtain a joint credit card.
Even though the payment history shows up on the authorized user’s credit report, an authorized user is not legally responsible for the debt. There is only one account owner for a credit card with an authorized user, while a joint credit card has two or more account owners responsible for the monthly payments.
Unlike a joint credit card, the primary account owner can oftentimes set spending limits and always remove authorized users at any time. The long and short of it is only one person has complete control over the account, which is not the case for a joint credit card account.
What Are Joint Loans?
Similar to joint credit cards, a joint loan allows you to apply and obtain funding with a co-borrower. Mortgage lenders will often offer the option for a joint loan along with lenders in the auto loan industry. A joint application will consider the credit scores of each co-applicant, and both co-borrowers will be responsible for the debt payments.
Getting a joint loan will make it so that the debt is in both your name and the name of your co-borrower, meaning you will both be legally liable for the full debt. Additionally, all monthly payments will show up on each of your credit histories.
Joint Loans vs. Getting a Cosigner
Joint loans may have similarities with cosigned loans; however, they are not the same. While a co-signer has a legal responsibility for a debt and making payments, if the primary borrower does not, they will not have the same rights a co-borrower would on a joint account.
Co-signing a loan requires you to take on the same risk of financial liability if the primary borrower defaults on the loan without the benefit of shared ownership that comes with a joint loan.
Pros of Joint Borrowing
There are many situations where a joint loan or a joint credit card account is the wisest option. Applying jointly for a loan or credit card can offer many advantages that you can’t get with a cosigned loan or an authorized user.
Here are a few of the pros of opening a joint account:
Two Credit Scores (Or More)
When jointly applying for credit, you benefit from multiple credit scores on your application. If you have a lower credit score, you could have far better chances of approval applying for a joint account with someone who has a higher credit score than you would on your own.
The lender or credit card issuer will be pulling the credit report of all applicants, so even if one of you has bad credit, the joint application could still be approved. By taking advantage of one of the co-applicants’ higher credit score, you could also gain access to a better interest rate that could allow you to save money. The higher your credit score is, the more likely you are to secure lower interest rates.
Improve or Build Credit
Similar to the advantage listed above, qualifying for a joint credit card or loan with the help of your co-borrower’s credit score could enable you to build your credit history with timely payments. Each monthly payment you make on time will boost your payment history, increasing your overall credit score.
If one of the joint account owners doesn’t have much of a credit profile to speak of, this could be a great way to build credit from the ground up. However, it is essential to ensure that the person you are joint borrowing with will continue with their history of responsible credit usage. A current good credit score does not necessarily mean they might not start missing payments in time.
Get Higher a Credit Limit
In addition to lower interest rates, multiple borrowers could also help you access higher credit limits or loan amounts because you will have significantly more monthly income to report on your credit card or loan application.
A higher limit on a joint credit card could give you a better credit utilization ratio, a hallmark of good credit.
Cons of Joint Borrowing
There are also many situations where a joint loan or credit card might not be the right move based on your circumstances. There are drawbacks of joint ownership that you should be aware of before making any decisions.
Here are a few of the cons of opening a joint account:
All Credit Scores At Risk
Late or missed payments would damage the credit scores of all joint borrowers on the shared account. Your actions and the actions of your co-borrower will affect the other, so it’s crucial to make your payments on time so that you don’t inadvertently harm someone else’s credit history. It is always advisable to be wary of who you take on debt with to make sure your co-borrower is trustworthy.
Potential To Be Liable for the Full Debt
When you share full ownership of a debt, you could end up being liable for paying the entirety of that balance if the other owner of the joint account defaults. The same is true if you cannot pay the debt. Your co-borrower will be fully responsible to repay the balance on the joint account.
Changes In Relationship Could Cause Issues
Mixing finances into a relationship is always a risk as disagreements in your finances can cause tension in the relationship. Likewise, disagreements in your relationship can cause issues in your finances.
Additionally, relationships are changeable. If there is a divorce or separation or some other kind of fracture in your relationship with the person you opened a joint account with, you might run into some issues navigating the handling of the debt.
How To Tell If Joint Credit Is Right for You
Before setting out to apply for joint credit of any kind, you should sit down with the co-applicant to frankly discuss the responsibilities involved with taking on a shared debt. Talk through every possibility and eventuality so you are both fully prepared for the responsibility.
Only if you can come to an agreement and trust each other implicitly should you move forward with your application for a joint account. If you make sure that you are both on the same page, joint credit could be the perfect lending option for you.
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