The purpose of a joint account will vary from person to person:
- Have you heard of joint accounts but don’t know if you need one?
- Do you need more credit but can’t wait for months to increase it?
- Are you a couple and want to simplify the way you manage money?
Joint accounts serve all these purposes. You’re essentially selling rights and responsibilities with another person. It simplifies finance, makes it easier to track expenses, and saves time.
What is Joint Credit?
Say you want to buy a house, but your score is far from perfect. Your wife, however, has a hundred points more than you. Not only would she qualify for a mortgage, but also get lower rates.
So you open a joint account. When you apply for the house loan, your lender will look at both scores. As long as one of them meets the requirements, you qualify for the best terms. That’s how you get around it when having a poor credit score. It only takes a few hours to set up the joint account.
However, joint credits have worse consequences when you don’t meet payments on time. It’s true that having two people responsible reduces the risk. But missing payments will affect both credit scores.
Joint credits are only a good idea under certain circumstances. Learn the pros and cons before you open this line:
PRO: Higher limits
Are you planning to make a big purchase? Maybe you’re a couple and want to buy a house or a car. Since both of you are going to use it, it makes sense that both pay for it.
If you sign up both people for a loan, you’re going to get a higher credit limit, typically almost twice as much as your individual account. If that’s not enough, each of you can keep an individual account aside from the joint credit line. That increases your limit almost four times:
- Your account (1x)
- Your couple’s account (1x)
- Your joint account (~1.8x)
If you don’t need that much money, you can instead break it down into smaller loans. You’ll reduce your credit utilization rate and improve your own score.
CON: Both people have to agree
You don’t have the same freedom as if you had your own account. Here, any major decision you make may affect the other person. If your personality prefers a high risk-reward, but your couple is the opposite, that will lead to stress and conflicts.
Also, whenever you move money from this account, the other person can see it. You can see it as an accountability tool to track expenses better. But you might instead prefer that others don’t know how you spend your money.
Financial decisions can be burdensome. If it’s your account, you can make it on a whim. But if there’s another person involved, you have to “waste time” consulting it.
PRO: You can use the best credit
You might need to borrow money right away. So you asked your friends and family, but nobody has anything to lend you. Your last choice is the private lender, but you don’t want to pay much interest due to your bad credit.
What you can do instead is open a joint account with a high-credit person you trust. So you use their credit to get the loan, but you’re responsible for the payments. Or, at least, that’s what’s fair.
Because if you don’t pay, you will lower someone else’s score and hurt your relationship.
Since you’re accessing better rates, it should be easier to pay back.
CON: Financial risk
For a lender, having two people responsible for their money sounds safer. But if you’re the most responsible person of the two, it may not be that safe for you.
You see, there’s no way to know whether the other person will deliver as much as you. Who knows how they’ll spend this money? What if they get a loan with your credit score and then disappear? You’d be left with the burden.
Let’s hope that this doesn’t happen to you. But almost 50 percent of all marriages in the United States will end in divorce or separation. While opening a joint account might be a good idea, don’t rely too much on it.
If you end the relationship, would you want your ex-partner to keep benefiting from your score and money? If they walk away, do you want to deal with all the debt they created? That’s the problem.
The Bottom Line
Joint credits are great tools to save time and increase credit limits. Just make sure you’re trusting the right person. It takes way too much work to rebuild a ruined credit score. So it may not be worth trusting your partner, no matter how much you love them.
If you want a joint account to benefit from someone else’s credit score, do it with special caution. Make sure you have a repayment plan. You don’t want to put in trouble the person who’s trying to help you.
And if you’re the one helping your partner, help them stay on the right track. You don’t need to micromanage, but make sure they know what they’re doing. Maybe you should recommend them to check these guides: