Joint credit is credit issued to two or more people based on their combined income, assets and credit history. A joint credit can be granted to several people or organizations. The parties involved share responsibility for repaying the debt.
Break 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 has completed or at least signed a credit application and now shares billing privileges. Instead of being 50% responsible for the invoice, the co-borrower is however 100% responsible.
Co-signing: As with a co-borrower, another party signs 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. 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.
- Addition of an authorized user: unlike a co-signer, an authorized user can use the available credit existing on an account but has no financial responsibility to repay the debt. The first party has already completed the application, obtained the credit and is responsible for the reimbursement; while an authorized user simply receives billing privileges. Adding authorized users to an existing credit card can help increase credit, assuming timely payments. On the other hand, an authorized user can also ruin the credit score of the originating party by accumulating debts. Sometimes authorized users can increase their own credit score if the originating party regularly uses and makes timely payments to the account.
When joint credit becomes a concern
Two or more people may consider applying for joint credit for a number of 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 examine all parties who apply to join the credit. Combined financial planning will generally affect the credit scores of all parties.
Joint credit can become a problem and concern in divorce proceedings. In these cases, the terms may make one partner responsible for certain debts and the other partner responsible for other debts. It is also possible that as a result of divorce proceedings; former partners can still affect each other’s credit.
Ways to close a joint credit card account can be difficult, especially in the case of an unpaid balance. Even if an issuer authorizes the closure of a credit card, the balance must generally be paid according to the original conditions. One potential solution is to transfer some or all of the balance to a separate credit card.