Many couples have joint bank accounts and joint loans, so also getting a joint credit card seems like a logical choice. While sharing a credit card with a partner certainly has its perks, there are also risks to carefully consider before you make this major financial decision.
Here’s what you need to know before you sign up for a joint credit card.
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What is a joint credit card?
A joint credit card is a line of credit that two people share equally: they are both responsible for all the charges and either one can make changes to the account. Both account holders can also transfer balances, report cards lost or stolen, request limit increases, make payments, initiate disputes and close the account.
Because both people on a joint credit card have equal access to the line of credit, which can impact each other’s credit history and scores, it’s important to have a lot of trust and transparency between both people. For example, if one person overspends and then leaves the relationship or passes away, the other is on the hook for the bill. Or if one person forgets to pay the bill, both people can take a hit on their credit reports.
However, signing up for a joint credit card can benefit both people, if used wisely. Here’s how:
More Spending, More Rewards
Many credit cards offer a sign up bonus and rewards programs. For example, credit card holders can earn bonus miles, cash back, point and other rewards that put money back in their pockets. But in order to earn these rewards, you usually have to use the credit card on a regular basis. When you have a joint credit card, it’s easier to meet spending requirements and earn extra rewards.
This seems like a no-brainer, right? Not so fast.
You, as an individual, have developed a spending habit with which you’re familiar and comfortable – you know your limits and when you can splurge. When you share a joint credit card with another person, you share spending habits, too. Their debt is your debt – and if you have a joint credit card, you’re solely responsible for the entire debt. Plus, high balances also mean high-interest fees which can often null the benefits of reward points.
Tip: If you’re going to share joint credit card expenses, make sure you and your partner establish ground rules for spending limits and paying off the card before making that first purchase. Also track your joint credit card spending regularly using online banking or a free budgeting app, like Mint or Level.
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Doubling Down on Your Credit Reports
Having a joint credit card means both of your credit scores are on the line. A higher credit limit (a perk of having a joint credit card) and paying the card on time each month are easy ways to boost both your credit scores. This has a positive cascading effect or both people: better scores, better chances of getting cards with more perks, higher credit limits and lower rates on future loans.
However, there is a downside to this. If your partner spends irresponsibly, racks up debt and is unable to pay the card on time, not only will you share the late fees and higher APR rates, but your credit report will show that you were irresponsible with your credit. Having a joint credit card can also make your debt-to-income ratio look larger because when two people share a card, the balance you each carry is usually double what it would be if you owned the card alone
Your debt to income ratio is the difference between how much debt you have compared to how much money you make. If your debt is too high to reasonably pay off with your regular income, this can reflect poorly on your creditworthiness. For example, if your debt is equal to 60% of your income, you’ll probably have a hard time paying your bills. In general, it’s good to keep your debt-to-income ratio at or below 36%. Anything greater puts you at risk of racking up debt you can’t afford.
Even though your debt-to-income ratio is not reflected directly on your credit score, creditors do look at it when deciding whether or not to lend you money – for a house or a car, for example. A high debt-to-income ratio could really hurt your chances of getting good rates or getting a loan at all.
Tip: If you’re in the market to secure a loan (especially a non-shared loan) in the near-future, consider putting your credit card spending on hold for 60 to 90 days and paying off any balances due. Having a low and stable debt-to-income ratio before the lending process can help your chances of getting approved with a low-interest rate.
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Scoring Lower Rates and Higher Limits
If your credit scores have suffered over the years and you can’t get a loan or low-interest rate on your own, getting a joint credit card can help your chances. By leveraging your partner’s income and good credit, you can qualify for a lower rate and higher credit limit. As long as you both use the card responsibly and make your payments on time, you’ll be able to piggy-back on your partner’s good scores to help boost your own.
Of course, the downside is that you’re putting someone else’s good credit at risk. When you share a credit card, whatever habits that lowered your credit scores may carry over to the joint credit card. So instead of boosting your credit scores, you can end up lowering your partner’s.
If your partner has a low credit score, into adding your partner as an “authorized user” on your credit account instead of applying for a joint credit card. An authorized user can make purchases with the line of credit but is not legally allowed to make any changes to the account, redeem rewards or inquire about charges and balances. This isn’t as impactful to credit scores as directly sharing a joint credit card, but you’ll be able to maintain full control over the line of credit while giving your partner a slight credit score boost.
Tip: To increase your chances of raising your partner’s credit scores, make sure the credit card company reports authorized users to the credit bureaus. Some don’t and the credit bureaus must have a record of the authorizes user for it to have an impact on their credit scores.
Simplifying Shared Expenses
A joint credit card makes sharing expenses like groceries, entertainment or household items pretty easy. Whether you want to split payments equally or proportionally, a single credit card account eliminates the need for money transfers and complicated bookkeeping.
The downside to this sharing a statement is that you lose your privacy – that gift you wanted to get your partner for his or her birthday won’t be a surprise anymore. You can also run the risk of upsetting your partner if they don’t agree with a purchase or how you spend money.
Still, sharing a credit card account can help keep each person accountable for their purchases and can help curb overspending. It’s a lot harder to put a splurge at the mall on your card when you know your partner is going to see it!
Tip: If keeping certain purchases private is an issue, consider keeping one credit card just for your own personal use. But if you find yourself trying to hide purchases or your partner is upset over what they consider unreasonable charges, then use this as an opportunity to start an open dialogue about money management and tackling finances as a team.