It seemed like a good idea when you jointly opened a credit-card account with your loved one – spouse, partner, child, parent, roommate, business partner or another trusted person in your life. It just seemed appropriate for a married or committed couple. Or to help your child off to college in emergencies and with expenses, or to oversee your aging parent’s finances.
Many people do not think through the possible negative ramifications of sharing liability for a credit card. Proceed with caution, or face potentially damaging financial consequences.
Basics of a joint credit card
While it can vary by user agreement and state law, normally either joint owner of a credit-card account can run up charges to the credit limit. In the spirit of full participation, either will also be personally responsible for the full amount due, regardless of who did the spending.
Anyone with whom you decide to enter into a joint credit card or other joint credit account should be someone you trust and with whom you can openly and honestly communicate about expectations. Will you both agree to spending limits and to a repayment schedule? Or to another reasonable arrangement so long as you agree. Because if you are counting on this arrangement to bring you into a closer working or personal relationship, things can go south quickly when one of you violates agreed-upon spending limits or payment plans.
Scammers are even targeting older people to start romantic relationships as a way to open joint accounts with the victims or access their finances in other ways, reports the Consumer Financial Protection Bureau (CFPB).
So, choose wisely. Know the person’s spending and payment habits and consider their employment history. Remember no matter how well you know someone, they can have unforeseen experiences that cause them to dishonor their responsibilities often through no fault of their own – think illness, divorce, job loss, mental health problems, addiction and similar challenges.
Even if the other owner dies while their charges are still unpaid on the joint account, the surviving joint owner is normally still personally liable for the entire amount.
Further problems
When the card is overutilized by keeping a high balance or payments become late, the credit-card company can report this financial behavior to the credit bureaus. This negative reporting will equally impact the credit scores of BOTH joint owners, regardless of who slipped up.
It may be difficult or impossible for one joint owner to close a joint account without the other’s participation. So, you can be stuck with liability for a balance that you cannot pay off because the other accountholder keeps charging and not making payments. And if you cannot make those payments on accounts you did not run up, those delinquent payments or unpaid balances will seriously harm your credit score and impair your ability to get credit, jobs, security clearances or leases.
All you can do is try to close the account, pay it down and wait for time to pass with good financial behavior until your score climbs again, but this can take a long time.
Divorce and joint accounts
Part of a divorce settlement or order is a division of debts between spouses. The court may assign liability for a joint credit-card balance to your spouse in the divorce, but unless the account is also closed, they can continue to use it or fail to make payments, leaving you holding the bag with the remaining joint debt despite the judge’s order.
Even if a court assigns the liability for a joint credit-card balance to your spouse, it merely assigns the responsibility for the payments owed between the two of you. It does not relieve either of you from liability to the credit-card company. If the debt is not paid, the credit-card company can come after either or both joint account holders (you and your spouse) despite the court having allocated the debt to your former spouse.
Use caution and seek legal advice
The media reports widely that financial institutions are offering fewer joint credit cards. According to thepointsguy.com, “Joint credit cards are like pay phones, CD players and incandescent light bulbs – they are slowly becoming things of the past.”
If you have any, you could try to close them while you are on good terms with the joint owner. Or you may want to use an authorized-user account instead.
Utilizing a joint account responsibly can build the credit scores of both owners, but if things go awry, speak to an attorney about legal options to limit liability and recover losses.