There’s a lot more to joint credit accounts than one might first consider. Slight differences in types of joint accounts can significantly impact your credit scores and debt liability. Before you add an authorized user to your account or cosign on a loan for a friend or relative, make sure that you read the information below.
1. There are 2 different types of joint credit accounts
Joint Credit Account:
As a joint account holder you incur an inquiry upon applying for the account, you are 100% liable/responsible for the debt, and the account reports to your credit file.
Authorized User Account:
As an authorized user, you do not incur any inquiries when added to the account, you are not responsible for any of the debt but, the entire payment history and account info reports to your credit file.
2. Joint Accounts, Individual Credit
Although you may have joint accounts with your spouse or family member you still have an individual credit report. Joining accounts does not joint credit files, your credit history, debt liability, and credit scores are still uniquely yours and yours alone.
3. Divorce decrees cannot reappropriate debt from credit reports.
Courts can reassign responsibility for debt such as personal loans, credit cards, auto loans, mortgages, etc… Entering a judgment that one spouse to take 100% responsibility for the debt but, they cannot force the credit bureaus to reassign the responsibility from the credit reports and remove the account from a credit report.
4. Co-Signer has 100% Responsibility.
Although there may be 2 signers on a debt you may think that each is liable for 50% of the responsibility. The reality is that both the primary signer and the cosigner are each liable for 100% of the debt. If the primary signer falls behind, the lender can go after the cosigner via collection agency and even file suit for 100% of the debt.
5. Household Income is a thing of the past
Remember when you filled out an application for credit 10-20 years ago, it would ask you for your household income. That way an unemployed housewife could qualify for a credit card based on her spouses income. Well, the Federal Reserve changed that. As of right now, lenders can no longer use household income to determine a consumer’s ability to repay a loan. Individual income has replaced household income, this leaves stay at home /unemployed spouses with limited options for getting a loan.
6. Joint Credit, Joint Reward, Joint Punishment
Joint credit means that you can benefit from the positive payment history that populates your credit report and increases your scores when the account is being paid on time. You can also be punished for a derogatory payment history that lowers your credit scores and destroys any chances of you being able to qualify for a mortgage, auto loan, credit card, etc… all because you cosigned for someone who missed some payments on their loan.
Be careful who you cosign for and make sure that you have the means of taking over the payments on the loan if the primary signer cannot.
By Dana Dratch
Consumer advocates and financial advisers are unanimous on the subject of co-signing: Don’t do it.
When you co-sign, you’re not vouching for the person’s good name or character. You’re not promising to tell the creditor where to find the cardholder if those payments stop coming. You’re agreeing to foot the bill. All of it. Along with fees and interest.
“That is the main role,” says Nessa Feddis, vice president and senior counsel for the American Bankers Association. “They are not a co-applicant or joint borrower.”
“Just put the pen down and walk away,” says Catherine Williams, vice president of financial literacy for Money Management International, a Houston-based nonprofit credit counseling program.
“Please, don’t co-sign for anybody,” says Bruce McClary, spokesman for ClearPoint Credit Counseling Solutions, a nonprofit service based in Richmond, Va. “Because it’s a gamble. I may be jaded, but I haven’t seen any really great outcomes.”
But if you did co-sign ….
Yet, you went ahead and did it.
Maybe only now do you realize that any black marks associated with the account can go on your credit report, too. And, since you’ve stepped up to accept full responsibility for the debt, you could have (depending on how the issuer reports the debt), that much less credit available to you when you need it for a house, car or credit card of your own.
“I’ve seen hundreds of cases where people’s credit is destroyed,” says David Jones, who heads up the Association of Independent Consumer Credit Counseling Agencies, a national network of nonprofit credit counseling services based in Fairfax, Va. Co-signers “have all of the responsibilities with none of the benefits.”
“It’s a long-term commitment,” says Todd Mark, vice president of education for the Consumer Credit Counseling Service of Greater Dallas. Too often, he says, co-signer responsibilities outlive the relationships that prompted the arrangements in the first place.
Co-signing exit strategy
So now that you’ve wised up and want to get out of co-signing, what do you do?
It’s not nearly as easy to exit a co-signing deal as it was to enter one.
Exiting the role of co-signer can be tricky. If the cardholder still doesn’t have the credit to qualify for an account without you, the company may refuse to remove you as a co-signer unless the balance is paid. That leaves you two options:
- Finding a replacement co-signer (if the company allows the practice).
- Closing the account yourself. You may have to specifically request an account be closed; if you ask to be “taken off” the loan, they may refuse. Again, the loan must be paid off, or small enough so that the other party can qualify for a loan in that amount.
Policies on ending co-signing agreements vary with the issuer, and the best time to ask how it works is before you sign. That way, if the potential cardholder or the issuer can’t or won’t answer all your questions, or if it seems too difficult to exit the arrangement, you can decline the arrangement.
And even after you manage to quit as co-signer or close the account, “you are still liable for any transactions made up to that point,” says Feddis.
In some situations, if the cardholder converts the card to a solo account (without a co-signer) or gets a replacement co-signer, the issuer might not hold you responsible for earlier charges. Ask the issuer how that works in advance.
Another problem for co-signers: keeping an eye on the account balance and payment history may be difficult. Before you sign, find out from the issuer whether you can request and receive statements on the account. Typically, an issuer will require your permission to raise the credit limit on the card, but ask about that, too.
And if you’re ever tempted again, , and remember what the experts say.
Co-signing situations, which mix a volatile combination of close personal relationships and money, are a prescription for problems, says Williams. “In 28 years of counseling, I’ve only seen one of those situations work out,” she says.
By Beverly Harzog
If fame and fortune were all we needed to be happy and secure, then there wouldn’t be so many celebrities fighting off creditors.
Many of us think that if we had the kind of money that celebrities have, we’d do a better job of managing our credit card debt. But if you have a credit limit of, say, a million dollars, you might have trouble reining in your spending, too.
Here’s a look at how celebrities Tori Spelling, Ed McMahon, Kim Kardashian and Courtney love joined the ranks of those with those who got into credit card debt. And there are some lessons here, too, for us regular folks.
Tori Spelling: The daughter of late billionaire, Aaron Spelling, and author of “sTori Telling,” revealed in a “20/20” interview that she had hundreds of thousands of dollars in credit card debt when her TV show, “Beverly Hills 90210,” went off the air. She blamed the debt on her “bad shopping habits.” Spelling says she got used to having a hit TV show and spending a lot of money. To her credit (no pun intended), she went back to work and got out of debt on her own.
Lessons for the rest of us: When things are going well, don’t rack up debt just because you can. You may have a high-paying job today, but resist the urge to whip out your card and live the high life. There’s no guarantee that you’ll have the same job when the bill comes due.
But there’s a reason why it’s easy to get caught up in “bad shopping habits.” Spending money on something you want activates the pleasure center in the brain,” says Dr. David Krueger, author of “The Secret Language of Money.” “Spending creates pleasure, but using a credit card also creates a separation between the spending part and the payment part,” says Krueger. So it’s easy to get into a cycle of spending because you’re not thinking about the other end of the sale — the part where you get your statement and owe the money.
To end the spending cycle, it’s important to take responsibility for your debt. Otherwise, change is difficult. “Spelling was able to get out of debt because she decided not to be in debt any longer,” says Justin Krane, a financial planner in Los Angeles.
Ed McMahon: Before McMahon died in June 2009, he was deeply in debt. He faced foreclosure on his home — he was $622,000 in arrears and defaulted on $4.8 million in mortgage loans — and reports also showed that McMahon and his wife had a huge amount of credit card debt. (Reports ranged from $180,000 to $750,000.) In an interview with Larry King, McMahon said it happened because he spent more than he made.
Lessons for the rest of us: Most of us would have to do plenty of shopping to rack up that much credit card debt. But when you have a huge limit and your spouse is also spending, things can get out of hand in a hurry.
When couples approach finances, there’s a power aspect involved. “Whether you make $20,000 or $200,000, decide that each partner gets to be autonomous over a specific amount, say $20 per week. Then sit down and communicate about where the family needs to go from a financial standpoint,” says financial planner Ken Clark, author of “The Complete Idiot’s Guide to Getting Out of Debt.” When you each have a small amount of “mad money,” these talks are easier to swallow. And be sure that you agree on what card you’ll use for these “mad money” purchases.
Kim Kardashian: Kardashian was hired as a “stylist” for R&B singer Brandy Norwood. Norwood’s mother allegedly gave Kardashian her American Express card and permission to make one purchase. According to news reports, Kardashian made a purchase, but then shared the card with her sisters, ringing up more than $120,000 in credit card debt. Kardashian claims she had permission to use the card for more than one purchase.
Lessons for the rest of us: The Kardashian and Norwood case has since been dismissed by the courts, but the basic credit card lessons of being responsible with plastic — especially other people’s plastic — is at the heart of the matter. “This is an example of why it’s important to teach your kids about credit cards and the value of money,” says Krane. “Kids who understand that are better equipped as adults to manage their money responsibly.”
And what about handing your card over to someone else? This is never a good idea. And not just because you can’t control their spending. “You shouldn’t trust others with your card. When it comes to identity theft, it’s often someone you know,” says Clark.
Courtney Love: American Express was suing Love for failure to pay off her $350,000 bill on her gold card earlier this year. Love said she wouldn’t pay because the charges were fraudulent. According to her attorney, Love believed her Social Security number was stolen, and she hired a private investigator to track down the perpetrators.
Lessons for the rest of us: Love’s situation shows how important it is to remember the basics when it comes to protecting yourself from fraud. It’s important to look at your credit card statements every month and take immediate action if you see charges for things you didn’t purchase.
“Celebrities and their high-powered attorneys need to understand that when it comes to responsibly using credit, the same rules apply to them as to the rest of us. They need to promptly open their credit card statements each month and check to make sure that all the transactions were authorized. If not, they should immediately report any inaccuracy to the issuer, and if identity theft is suspected, consider putting a freeze on their credit report. Delaying a dispute only complicates things, something I’m sure Courtney Love would attest to,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.
Today, many Americans are carrying debts across a number of accounts and loan types, and their balances can sometimes grow as a result of significant interest rates. Fortunately, there are a number of ways consumers can reduce these charges.
When consumers have large interest rates on their various loan types, they can often pay more into their added charges as a result of those APRs than they do into their principals, according to a report from Kiplinger’s Money Power. Therefore, it can be a good idea for consumers to look into ways to reduce the interest rates they pay on their accounts.
One of the easiest ways to do this for credit cards can be to call up a lender and ask, the report said. Consumers with strong borrowing histories who may find themselves a little overburdened by their current rates can have some success with this method, particularly if they are persistent about doing so. But if they aren’t, it may be a good idea to find a balance transfer credit card that will allow them to move their debt to a new account that provides them with a 0 percent introductory rate for the first six to 18 months they have the new card.
Of course, there is also the popular option of refinancing a home loan, the report said. This can be a bit of an arduous and complicated process, but the result for those who are successful in their attempt is extremely beneficial. A refinance can save consumers hundreds of dollars per month or more on their monthly mortgage bills, and reduce the interest rate on their remaining balance by a few percentage points, saving them more in the long-run as well.
And a less well-known type of refinance comes in the form of auto loans, the report said. As with mortgage refinances, seeking this for an auto loan can significantly reduce both the amount a driver pays per month and the interest rate that balance carries. However, many auto financing lenders have penalties built into their loan agreements for consumers who pay off their balance early, which might be costly for those looking to refinance.
Another great way consumers can get out from under their debt is by increasing the value of their monthly payments so that they eliminate their balances more quickly.
by: Michael Creditfirm.
…And What To Do About it!
If you’ve never been rejected for credit, counsider yourself fortunate. Only 25% – 35% of all credit card applications are typically approved.
This means three out of every four applicants are being denied credit. With some issuers, the approval rate may be as low as 10%.
If you’re not turned down for credit, you may be told that you didn’t qualify for the best rate. Either way, if a credit score (or credit-based insurance score) was used in the decision-making process, you must be told the main factors that contributed to your score.
Deciphering those reasons can be maddening though. “What do you mean I have no recent revolving balances?” Or, “So it says my account balances are too high. What does ‘too high’ mean anyway?”
Here’s a guide to some of the main reasons you may be turned down — and what you can do about them.
Keep in mind these are just some of the factors that may be used to evaluate your credit. Not all of them will apply in all situations, and there may be variations on these as well.
Reason 1: Proportion of balances to credit limits is too high on bank revolving or other revolving accounts
What it means: The score likely looks at your total available credit limits and compares them to your outstanding balances, individually and in the aggregate. The greater the percentage of your available credit that you are using, the greater the impact to your scores. There’s no magic number here, though. In other words, getting your balances below 30% or 50% of your available credit doesn’t automatically eliminate this factor. This is also referred to as Amounts Owed.
What you can do about it: Focus on paying down balances that are close to the credit limits as quickly as possible. What about transferring a balance from a maxed-out card to one with a smaller balance? While that might help, it’s not likely, since you still have just as much debt as before (another factor). If you can’t make headway on paying down your credit cards, you may want to talk with a credit counseling agency.
Reason 2: Amount owed on accounts is too high
What it means: This factor may look at your debt in comparison to other consumers, and if your debt is higher than optimal, it could show up as a reason why you weren’t approved.
What you can do about it: This one is particularly frustrating because you probably have no idea how much debt is too much, nor do you know which balances to try to pay down first. Typically, though, you’ll get the most bang for your buck, credit-wise, by focusing on paying down your credit cards with balances that are closest to the limits first. Just like the first reason, all of the factors of Amounts Owed sill applies.
Reason 3: Too many recent inquiries last 12 months
What it means: This reason appears when your credit report indicates a high number of credit applications (inquiries) within the last year. But not all are counted the same. Checking your own credit reports doesn’t count; nor do promotional inquiries, inquiries from employer and insurance companies, and account reviews by your current creditors. The impact of inquiries on your credit will vary, depending on your overall credit profile, but the typical inquiry can be expected to impact your score by about 5 points.
What you can do about it: This reason is more likely to appear when you have a limited credit history or strong credit, simply because there are fewer other significant negative factors affecting your scores. But it doesn’t hurt to lay low for a while. Avoid opening new retail cards. While all inquiries resulting from shopping for a mortgage, student loan or auto loan aren’t as likely to hurt your score as the same number of inquiries for credit cards, limit your applications to a short period of time, such as 14 days. This reason falls into the New Credit part of the FICO algorithm.
Reason 4: Level of delinquency on accounts
What it means: Delinquency refers to payments that were late (Payment History). The general rule of thumb is that the further you fell behind, the greater the impact to your credit score.
What you can do about it: The rule of thumb is that if the information is inaccurate, you can dispute it. If it’s correct, you may have to have to live with it for a while. Focus on making your current payments on time. If cash is tight, remember that all you have to do is make the minimum payment on time to avoid a delinquency on your report. Credit Firm has deleted thousands of late payments from our client’s credit reports. If you have late payments reporting on your credit report, contact Credit Firm today.
Reason 5: Time since delinquency is too recent or unknown
What it means: Recent late payments will have a greater impact on your score than older late payments. Typically, those within the most recent year or two can hurt your scores the most. If an account was delinquent a while ago, but the credit report doesn’t indicate the date, this factor can pop up as well.
What you can do about it: The good news is that as time passes, these delinquencies will carry less weight, especially when you are paying current bills on time. But the date is important here. Again, Credit Firm has deleted thousands of late payments from our client’s credit reports. If you have late payments reporting on your credit report, contact Credit Firm today.
Reason 6: Serious delinquency, derogatory public record or collection filed
What it means: This can mean your credit report includes a bankruptcy, judgment, tax lien or collection account. Bankruptcy remains on your report 10 years from the date you file (7 years for a completed Chapter 13); paid judgments can be reported for 7 years but unpaid judgments can stay on there even longer; paid tax liens are removed 7 years after being paid, but unpaid tax liens can remain on your report indefinitely; while collection accounts may be reported seven years and 180 days from the date you first fell behind with the original creditor leading up to the account being turned over to collections.
What you can do about it: Most people will tell you that if the information is accurate, then this is also a matter of biding your time and making sure you have as many positive credit references currently reporting as possible. (A secured card may be an option if you can’t qualify for a regular credit card.) And while paying a collection, judgment or tax lien won’t likely change this factor in the short run, it could result in the public record item being removed from your report sooner, and protect you from being sued for a debt which could result in additional judgments or collections on your credit reports. But if you don’t want to sit around waiting, then taking the bull by the horns may be the option for you. Credit Firm has deleted thousands of derogatory account’s from credit reports including judgements, tax liens, repossessions, charge-offs, bankruptcy, and foreclosures. If you are ready to take charge of your credit and your life, sign up today and take the first step to improving your credit.
Reason 7: No recent revolving balances (or no recent bankcard balances)
What it means: This reason may appear when your credit report doesn’t include any revolving accounts (usually credit cards), or when all your credit cards closed or are no longer being reported. If you have open credit cards, it may also appear when there are no balances on those accounts.
What you can do about it: Don’t worry. This doesn’t mean you have to have debt to have good credit. As long as you use your cards from time to time, this shouldn’t be a problem. But if you are avoiding credit cards all together, you’ll have a tough time getting a top credit score. Get a credit card and use it occasionally — even a secured card — and pay it in full and on time, and you should be fine. The Length of Credit section explains this well.
Reason 8: Lack of recent installment loan information
What it means: Your mortgage was paid off years ago. You pay cash for your cars. You don’t have any outstanding student loans. Guess what? The fact that you’re ultra-responsible here doesn’t help your credit scores.
What you can do about it: The strongest credit scores go to those with a mix of different types of accounts (Credit Variance). Does that mean you have to rush out and take out a loan? No. But next time you go to buy a car, you may want to find out if you qualify for 0% financing, or a low-rate loan. Or you may want to see if you can get a low-rate personal loan to consolidate some higher-rate credit card debt. On the other hand, don’t go overboard. You don’t want to pay a lot in extra interest charges.
Reason 9: Too few accounts currently paid as agreed
What it means: This reason appears when your credit report does not show enough accounts paid on time relative to the number of accounts with late payments. But if you haven’t been late with payments, this reason most likely means that you need more accounts reported on your file as “paid as agreed.”
What you can do about it: You may want to think about adding a current credit reference, or even a couple of them over time. If you’re having trouble getting approved for a credit card or personal loan, consider a secured card. Credit Firm has deleted thousands of late payments from our client’s credit reports. If you have late payments reporting on your credit report, contact Credit Firm today.
Reason 10: Too many consumer finance company accounts
What it means: Consumer finance companies make relatively small personal loans, usually limited to several thousand dollars, and quite often at interest rates higher than those on most credit cards. Consumers who rely heavily on consumer finance company accounts tend to be riskier to lenders than consumers who do not have any.
What you can do about it: Paying off these types of accounts will not improve your credit immediately but it’s still a good idea to pay them off as soon as you can since the interest rates are probably high. Next time you need to borrow, try first to get a standard personal loan through a social lending website, for example, or your bank or credit union.