Individual vs. Joint Accounts

Should you apply for credit jointly or singly?   Here are a few tips to help you decide. There are two kinds of credit accounts: individual and joint. You can designate authorized persons to use the account with either. When you apply for credit, you'll be asked to select o­ne kind.

Individual Account: Your income, assets, and credit history are considered by the creditor. Whether you are married or single, you and you alone , are responsible for paying off the debt. The account will appear o­n your credit report, and may appear o­n the credit report of any "authorized" user. However, if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), you and your spouse may be responsible for debts incurred during the marriage, and the individual debts of o­ne spouse may appear o­n the credit report of the other.

Pros/Cons: If you're not employed outside the home, work part-time, or have a low-paying job, it may be difficult to show a strong financial picture without your spouse's income. But if you open an account in your name and are responsible, no o­ne can negatively affect your credit record.

If your spouse is not particularly responsible with credit, i.e. has a tendency to pay late, not to pay until his/her account is in collection, or has previously filed for bankruptcy you may want to keep your credit accounts separate.

Joint Account: Your income, financial assets, and credit history and your spouse's are considered for a joint account. Regardless who manages the household bills, you and your spouse share responsibility for seeing that debts are paid. A creditor who reports the credit history of a joint account to credit bureaus must report it in both names (if the account was opened after June 1, 1977).

Pros/Cons: An application combining the financial resources of two people may present a stronger case to a creditor who is granting a loan or credit card. But because two people applied together for the credit, each is responsible for the debt. This is true even if a divorce decree assigns separate debt obligations to each spouse. Former spouses who run up debts and don't pay them can hurt their ex-partner's credit histories o­n joint accounts.

Authorized Users
If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your spouse's name as well as in yours (if the account was opened after June 1, 1977). A creditor also may report the credit history in the name of any other authorized user.

Pros/Cons: User accounts often are opened for convenience. They benefit people who might not qualify for credit o­n their own, such as students or stay-at-home moms. While these people may use the account, you   (not they) are legally liable for paying the debt.

In the Event of Divorce
If you're contemplating divorce or separation, closely review the status of your credit accounts. If you maintain joint accounts during this time, it's important to make regular payments so your credit record won't be harmed. As long as there's an outstanding balance o­n a joint account, you and your spouse are responsible for it.

If you divorce, you may want to close joint accounts or accounts in which your former spouse was an authorized user. Or ask the creditor to convert these accounts to individual accounts.

By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit o­n an individual basis and then, based o­n your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.