Joint credit accounts, whether a credit card or a home loan, can be a great idea. Except when they are not. While they may allow two people to pool assets and obtain a larger home or have a higher credit limit on a credit card, there is a catch.
A very large catch. That “joint” part means that both of you can use the account and that both of you owe on the account…forever. As long as there is a balance, any balance, you are each liable for the entire balance.
Joint Account, Co-Signer or Authorized User?
There is more than one type of a joint account and the liability of each is slightly different.
If you have a joint credit card, and you both filled out a credit application, you are both liable for the entire amount of any charges. It does not matter who made the charges, you are both on the hook.
If you are a co-signer on a credit card or loan, you cannot access any of the credit, but you are 100% liable for the debt. For parents, this means if you co-signed any of your children’s credit cards or student loans, you could be stuck paying the full amount. That debt also counts against your credit rating.
If you are merely an authorized user, you do not have any direct obligation to repay the debt, but you should be aware some collection agencies might still attempt to collect from you.
Divorced?
One element of a joint account many people fail to understand is the fact that a divorce does not alter the contractual terms of you loan obligations. Even if your former spouse was “given” the car and the loan obligation, if you co-signed, when your ex-spouse defaults, the lender will come after you to repay the loan.
Make certain in a divorce to close all joint accounts, if possible. This may mean you have to pay off some loans and reapply for a new loan. You want to be the sole holder of your accounts, as that is the only way to ensure there are no surprises on your credit.
Source: creditcards.com, “6 secrets about joint credit”, Dana Dratch
