Accounts every married couple should know about
By Dawn Papandrea
December 22, 2014
If you're looking to share credit cards before or during marriage, you should know who's responsible for what, and how it affects your credit.
We turned to experts for the nitty-gritty on different types of shared card accounts, who's responsible when it comes to debt and how shared cards affect each individual's credit score and financial standing.
The matrimony of credit: Joint accounts
“Most couples I work with opt to have joint checking/savings and credit card accounts to better manage household finances,” says Holly Kylen, retirement coach for Voya Financial, a financial services company. “As long as the two of you are on the same page about spending, having joint accounts can help you be a true team.”
In fact, joint card accounts can be a fantastic way to pay for shared family expenses and effectively manage that part of the budget, says Randy Hopper, vice president of credit cards for Navy Federal Credit Union. “In addition to a joint card, a joint checking account to manage those payments also works well,” he says. Plus, if you are savvy and pay your card bills off in full each month, you can maximize cash back and rewards programs since both of you will be earning points, adds Hopper.
What you need to know about joint card accounts, however, is that both account holders are responsible for any debt owed on the account, says Hopper. “There's a primary applicant and a co-applicant, but activity on that account is reported to the major credit bureaus for both parties,” he says. In other words, both individuals' credit scores are affected by that one account, even if it was just your spouse who charged up a balance and didn't pay the bill on time. Also, it's difficult to be removed from a joint account, especially if there is a balance.
Heads up: Few card issuers allow joint accounts anymore, but there is an alternative.
Piggyback: Authorized user accounts
There is another type of card account that couples can use instead of a joint account — authorized user accounts.
“A lot of people think that they have a joint credit card, but sometimes it's really that one person is an authorized user,” says Pam Friedman, certified financial planner and a certified divorce financial analyst with Silicon Hills Wealth Management. While an authorized user has a physical card with his name on it and can make purchases and payments, he is ultimately not responsible for the debt.
“A lot of people think that they have a joint credit card, but sometimes it's really that one person is an authorized user.”
–Pam Friedman, Silicon Hills Wealth Management
Here's how it works: If the account is managed well, both account holders' credit reports benefit. If the account is not in good standing, negative payment activity can show up on both cardholders' reports, damaging both credit scores. However, the authorized user can get himself easily removed from the account, and can subsequently get the account information removed from the credit reports.
This is a good way for a couple to build rewards points, or for a spouse with spotty credit to “piggyback” and build his credit.
Staying single: Individual accounts
Just because you're part of a married couple doesn't mean you can't “stay single” when it comes to cards. “As a married person, you should always have your own credit,” says Friedman. Even if you are a stay-at-home spouse without income, opening a card in your name is possible, thanks to an update to the Credit CARD Act in November 2013. According to the Consumer Financial Protection Bureau's website: “The revision allows card issuers to consider third-party income if the applicant has a reasonable expectation of access to it.” Therefore, in the case of a married couple, it's assumed that the stay-at-home spouse would have access to the total household income.
As for individual credit accounts that came before the marriage, make sure any financial skeletons are out of the closet before getting married, but especially before trying to buy a house together, says Kylen. “Discuss school loans, card debts and other prior obligations. Your debt and your partner's impact not just your collective bottom line, but also your ability to jointly make financial commitments, like buying a first home,” she says.
While blemishes on your credit cards technically don't affect your spouse, it can come into play if you try to apply for a loan together since both credit reports will be pulled. If one person has poor credit, it will likely mean not being able to qualify for a competitive interest rate.
The credit breakup: When things don't work out
In most states when couples divorce, both parties may be responsible for joint card account debt, while primary account holders could be on the hook for account balances in which the ex-spouse is an authorized user.
Things get tricky, however, in community property states, says Friedman. “In community property states, the debt is split equally, whether you're an authorized user or owner. The bottom line is all debt belongs to both of you if it is created during the marriage,” Friedman says.
Of course, the attorneys can work out agreements if it's apparent that one person did most of the spending on individual needs rather than family expenses. Currently, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state.
However, if an ex-spouse neglects to pay post-divorce on an account that is in the other spouse's name, it's difficult to remedy. As far as the card issuer is concerned, it is the primary card owner who is legally responsible for a debt, no matter what the divorce decree says. So it's best to settle up debts prior to divorce, if possible. Whichever types of accounts you choose, it's important for both parties to check their credit reports at least once a year for free at AnnualCreditReport.com. Make sure accounts are accurately reflected and that your reports aren't taking a hit from bad financial behavior on your partner's side.
Also, make sure that both of you have a credit file. “No credit can be worse than bad credit,” says Friedman, especially in cases where the marriage ends, and one party has no access to credit of their own.