Sharing is caring, but when it comes to sharing a credit card, be sure you know the risks of each of your options. From who’s responsible for paying the debt to the differences between a co-signer, joint accounts and an authorized user, explore your options for sharing a credit card before you sign on the dotted line.
Joint Credit AccountsJoint accounts are credit card accounts in which both you and someone else are both listed as primary account holders. Many couples opt for this type of account when they tie the knot. What you need to know about joint accounts is:
• Both account holders share equal responsibility for the debt accrued on the account
• Both of you are authorized to make changes to the account
• The joint account will appear on both you and the other account holder’s credit reports
• Regardless of who is making the charges or missing payments on the account, both positive and negative account information will appear on both of your credit reports
Authorized UsersAuthorized users are accounts where there is one primary account holder, but lists other people who are authorized to charge to the account. Many parents opt to add their children as authorized users to help teach them financial responsibility. What you should think about before adding authorized users to your account is:
• Authorized users are not financially liable for the status of the account, including making payments
• Regardless of who went on a spending spree, any accrued debt and any missed payments will only affect the primary account holder’s credit score
• Authorized users do not have the authority to make changes to the account
Co-signerCo-signers are borrowers who agree to take responsibility for a debt should the primary borrower become unable to pay. Parents commonly co-sign for their children to help them establish a credit history. What you need to keep in mind before co-signing on an account is:
• You will have to pay up to the full amount of the debt of the primary borrower does not pay
• The status and account history of the co-signed account appears on both your and the primary borrower’s credit report
• In many cases, as soon as the borrower misses a payment the lender can pursue payment from the co-signer
• The co-signed loan is considered by potential lenders as one of your financial obligations when you apply for another loan or line of credit
When considering joint accounts, adding authorized users or becoming a cosigner, don’t skip the most important step: talking about how the account should be used and how payments will be handled. Secondly, be sure both parties are checking their credit reports regularly to ensure no suspicious or unfavorable activity is taking place.
Money matters have a way to sinking relationships, whether it’s with your honey or your youngster, so tread carefully when considering these three options for sharing a credit card.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2013 ConsumerInfo.com, Inc. All rights reserved.