What are the differences between joint accounts, co-signers and authorized users when it comes to credit cards? My fiance and I are working on melding finances, and we're trying to figure out the best option. We both have good scores (mid-700s). I have a credit card, and he has two, no balances carried month to month on any of them. We're looking to get a shared card for house expenses, or possibly make one of our existing cards shared, and we want to make sure we understand our options. – Melody
Well, if I were to summarize the main differences between the three types of account sharing you mentioned, it would be trouble, more trouble — and worst trouble.
OK, so I may be exaggerating a tad, but there are so many downsides of sharing credit cards — no matter how it's done. So it may not be the best way to go, especially for newlyweds.
The main benefit of sharing a credit card is that under some circumstances, it can help boost the credit score of the person sharing the card with you. But because you both have great credit, that's not really relevant to you anyway. Here are the differences between the three types of shared accounts, so you can judge for yourself.
Authorized user. In this scenario, one person is the sole account holder and adds the other person as an authorized user. The upside is that you would each have a credit card that you could make charges with, and you'd have one bill at the end of the month for all house expenses. However, the main cardholder would be ultimately responsible for all the charges the other person makes, while the authorized user has no responsibility for making payments.
Joint account. With a joint credit card account, you are both main cardholders and you are both equally responsible for the charges on the account. While removing an authorized user only takes a phone call to the credit card issuer, you can't remove yourself from a joint account as long as there is an unpaid balance on the account. In other words, you could potentially be on the hook to pay off a credit card debt from charges you never made or agreed to.
Co-signer. As a co-signer on a credit card, you agree to cover the debt responsibilities of the other person should the person be unable to pay the credit card bill, no questions asked. This is obviously the riskiest scenario of all, because it can be like signing off on a blank check. You are fully on the hook should the person you have co-signed for on the debt defaults, but, depending on which bank you're using, you may have less access to account records and limited or no charging privileges. Check with the card issuer to confirm its policies, because they vary.
The bottom line? When it comes to credit cards, any kind of sharing arrangement is risky. Compared with cash, credit often makes it far too easy to spend money you don't have. And therein lies the seed of many marital disagreements.
It might seem like a great idea to have a shared credit card for household expenses. But unfortunately, couples often don't agree on what is considered “necessary.” And if hubby racks up charges that you feel are unnecessary (and that you may be equally responsible for), well, it's easy to feel resentful.
In addition, when you both have a card on the same account, it can be tricky to keep track of charges, unless you have the discipline to constantly compare notes — or stay well under your credit limit. Let's say you're $500 away from your credit limit, and you make a $500 charge, planning to tell your husband later that day. If he then decides to make a $500 charge that same day with plans to tell you later, you'll be over your limit — and will get hit with fees (or denied transactions).
In short, if finances become too closely entwined too soon, it can become a source of friction for couples. As newlyweds, you're better off merging your finances slowly until you know how compatible you are financially. I suggest putting money for household expenses in a joint checking account — or on two prepaid cards. That way, at least, you will never spend money you don't have, and when the money is gone, it's gone.
Also, keep your credit cards separate for now, but regularly compare notes. That way, you'll both know your full joint financial picture without having to micromanage each other's purchases. If you happen to live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin), things can get a bit more complicated, as all debts acquired during a marriage may be considered shared, even if you keep separate credit cards.
Most people bring different values and attitudesabout money to their relationships, as well as personal financial habits that may not be compatible. If you leave each other enough room for your differences, rather than putting yourself in a situation where you are forced to agree on everything, you will ultimately be better off. If it turns out that you are one of those rare couples who see eye to eye on all things financial, you can always begin to share credit more and more over time.
Got a question for Eva? Send her an email.