Big Pitfalls Of Joint Accounts And Credit
Big Pitfalls Of Joint Accounts And Credit, Few realize the difference between joint credit, authorized use, and co-signing. Want to be legally joined in life? In most cases, you need a marriage license and a ceremony. If you’re lucky, you also have witnesses, music, a cake, some flowers, a few gifts and a nice meal afterward.
Want to be legally joined in debt? Just sign on the dotted line. No dresses, no tuxes and not so much as a cupcake for your trouble.
Before you enter into the world of joint credit, it pays to know a little more about what goes on behind the scenes, from how potential lenders view the debt to who is ultimately responsible for paying it — and how it impacts your credit score.
As with marriage, a lot depends on who you choose as a partner.
“The most obvious thing is to really be careful about who you open a joint account with,” says Anthony Sprauve, spokesman for FICO, the company that pioneered credit scoring.
“If the other person disappears or flakes, you’re going to be responsible for that debt,” he says.
So before you fill out that next credit application, here are six things you should know about joint credit:
No. 1: There’s more than one type of shared credit.
People throw around the term “joint credit,” but they don’t always understand what it means.
“I don’t think people understand the extent of their liability,” says John Ulzheimer, president of consumer education for SmartCredit.com. “If you’re a co-signer or co-borrower, you’re liable.”
There are three different kinds of shared credit (and sometimes both consumers and lenders will use slightly different terms.) They are:
Joint credit: You are a full partner on the account. You filled out or at least signed a credit application for a card or loan. The credit account or loan has your name on it, and the money or credit is yours to use.
What you might not know: You are responsible for 100 percent (not 50 percent) of the bill.