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Life Stages & Events

Share Credit Carefully

Before you make the decision to share credit, it's important to learn about the pros and cons of combining your borrowing activities with another person's. The joint credit choices you make may affect your individual credit score and credit report.

sharing credit

Many people choose to share credit as part of the financial commitment that comes with marrying or becoming a couple. While it's true that there are some benefits to this, especially when it comes to applying for new credit, there are also some things that you should be aware of before deciding to share accounts and forms of credit.

Advantages of sharing credit

When you apply for new credit, having two borrowers may strengthen the overall credit application, especially if one party has a low credit score individually. The higher credit score of the other applicant may improve the chances of being approved. However, lenders look at more than just your credit score when considering credit applications.

If your significant other has steady and verifiable income, you may qualify for a higher approval amount than if the application is based on your income only.

Your application may also benefit if your partner has a longer credit history than you do and if his or her financial situation improves your joint overall net worth. This means that his or her listed assets, such as investments, vehicles and real estate, outweigh any debt on the credit report.

Joint credit, that's responsibly managed with all payments made on time, may even help improve your individual credit scores.

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Disadvantages of sharing credit

A disadvantage you may not be aware of is that each person is fully responsible for the whole amount owed, not half of it. If one borrower skips town, the other must continue payments until the debt is paid off.

Another little known fact is that the full amount of joint credit, as well as any credit for which you have co-signed, is included in your total debt when you apply for new credit. So if you and your spouse have a joint $100,000 mortgage and you apply for a $2,000 credit card on your own, your individual application includes the entire $100,000 mortgage amount, even though you share the debt with another person.

When you share credit, late payments or other negative activities on joint accounts (such as repeatedly maxing out a credit card) affect the credit scores of both individuals on the account, regardless of who's responsible for the bad credit behavior.

Additionally, one applicant could have high debt, canceling out the benefit of the higher joint income. If he or she has a bad credit score, it may even increase rates on joint credit such as mortgages and loans.

Common misconceptions of sharing credit

There are many credit myths and misconceptions floating around, and several of them refer to shared credit.

First, credit bureaus don't provide shared credit reports. Your joint credit will instead show up on each of your individual credit reports.

Second, there's no such thing as a shared or joint credit score. Joint credit is factored into your own credit score and may affect your score differently than that of your spouse or co-borrower.

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This information is for educational purposes only and does not constitute legal or financial advice. You should always seek the advice of a legal or financial professional before making legal or financial decisions.
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