Your Credit Score and Joint Accounts

There are a number of reasons for individuals to have joint accounts. The most common is marriage. When two people "tie the knot," they often merge all of their assets and accumulate debt in both names. In other instances, parents will co-sign loans for their children, who are unable to obtain a loan without any credit history or, worse, bad credit. This becomes a "joint" account, as far as the creditor and the credit bureaus are concerned.

It is important to understand that any credit account to which you name is attached will appear on your credit report, and the history of payment on that account will affect your score.

Joint accounts are fine, so long as they are kept in good standing. It also makes sense when a husband or wife has not had any credit history and needs to develop one, and the good credit history of one can assist in the development of a history for the other. Thus, a husband or wife may attach his/her spouse's name to a credit card, so that the prompt payments will appear on the other spouse's credit report and raise the score.

If a couple plans to purchase a house and needs both incomes to support the mortgage loan, credit scores will be pulled on both borrowers. Usually, a lender will take the middle score of each borrower, and use the lower of these two to determine qualification for the mortgage loan. Both borrowers need to have a good score, and good scores come from good payment history and enough credit "lines" to show that there is a pattern of paying several debts on time. If one spouse has not had enough credit to show 3 or 4 items on his/her report, it can be a problem. So, if payment histories are good, it is wise to add each other on credit cards, for example, so that these will show up on both reports.

There are times, however, when it makes sense to keep accounts separate or to separate out former joint accounts. Husbands and wives who both work often want to keep their own accounts and credit cards, because it maintains a sense of independence. So long as both are promptly making any payments, they can still apply for joint credit for major purchases, such as a home.

When a couple gets into financial difficulty, and is considering either a Chapter 13 or Chapter 7 bankruptcy, some creative planning ahead of time should occur. If accounts have been held separately, only one spouse should declare the bankruptcy, so that the other maintains a decent credit score for future use. Spouses can be removed from each other's credit cards, and this also helps. If there is a home involved, some state laws will require that home to be in the bankruptcy if there is over a certain amount of equity in it. Removing a spouse from the title and waiting an entire year before declaring the bankruptcy will usually be necessary in this instance. Further, if joint checking and savings accounts have been held, they need to be separated for at least six months prior to filing, or money in those accounts will become a part of assets in the filing.

Beware of any co-signing you do. If a spouse or child has no or bad credit, certainly you want to help them out. But co-signing makes you a borrower on that loan as well, and payment history will be reported on your credit each and every month. Be certain that the borrower is willing to inform you if he/she cannot make a payment, so that you can step in and make it to keep your credit healthy.

The key words here are caution and careful planning. Look at all of the factors and at what your future financial plans are when deciding whether to remain separate or to go "joint."

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