Financial Solution Services, Inc.: Business 2 Business

Why You Shouldn’t Have Joint Accounts

Some married couples believe that having joint credit card accounts will make paying off revolving debt easier when in fact, joint accounts can damage credit scores and leave both husband and wife in financial distress. Separate credit gives each party financial freedom and the ability to transfer debt if necessary. It's always best to build your credit separately. Let’s look at some examples of what could happen to couples with and without joint credit accounts.

John and Susan have a joint account and have decided that after 17 years of marriage to divorce. The judge rules that John still has to pay the mortgage on the house even though it is no longer his residence. If John does not pay the mortgage, Susan’s credit will plunge because of their joint account. Although legally John has to pay, the credit bureaus will remain with the first contract. That is to say, both John and Susan legally agreed to pay jointly and to share the liability long before the judge’s ruling. Therefore, the credit bureaus have every right to sink Susan’s credit since she and John together have missed payments. Not only is Susan stuck with bad credit, she can lose her house. If the house forecloses, then she will have a hard time obtaining loans or could end up paying hundreds of thousands of dollars more in extra interest all because of her recently destroyed credit.

Now this might not ever be an issue for you and your spouse, but it is always better to be on the safer side. The only time joint debt can help you is if a couple wants a full documentation loan where they must show each of their incomes to qualify for the loan. That is really the only time you ever want to have joint debt. Separate accounts enable a couple to transfer debt and can help avoid power struggles and confusion. Let’s look at another example of how transferring debt can help you raise your credit score and attain a loan with suitable interest rates.

Joey and Carol have also been married for 17 years. They both have credit scores of 670 and each have a $50,000 credit limit. Carol has $30,000 in credit card debt while Joey owes $20,000. They want to move to a nicer house, but they do not have good enough credit to obtain a low interest rate. If Joey pays off his wife’s credit with the remainder of his balance, Carol’s credit could rocket up to 720 or 730 and she will be able to acquire the loan herself.

At the closing, Carol can do a quick claim deed and add Joey to the property deed. This way both own the property, but Carol holds the note. Joey’s score will suffer, but they obtained the loan that they wanted at a great interest rate by simply transferring the debt.

After the loan closes, they can do a balance transfer and put the money moved into Carols account back into Joey’s. They would never have been able to do this if they had joint accounts, because the credit card debt would show on both credit reports no matter where they moved the money.

By having separate accounts, husbands and wives gain financial independence and more accessible solutions. Sharing debt will hurt both credit scores and reduce flexibility. A couple can have shared money to attain certain financial goals such as retirement, travel, kids’ college funds, investments, etc., but building credit individually and not sharing debt is best.

Brought to you by Financial Solution Services' Research & Development Team