Reasons why joint credit cards are a bad idea

Universal credit cards are like pay phones, CD players and incandescent light bulbs – they’re slowly becoming a thing of the past.

However, every once in a while, you may come across a credit card offer that allows you to include a joint account holder in your application – but is it a good idea?

It is usually unwise to co-sign with someone else when opening a credit card account, especially since there is the option to add them as an account. authorized user available. Keep reading to see why a joint credit card might be a bad idea.

Related: Credit cards have the greatest value for authorized users

Difference between joint account holder and authorized user

There’s nothing wrong with sharing a credit card with someone you love and trust. In fact, sharing your account can increase your ability to earn rewards and encourage financial transparency between you and your spouse. Sharing credit cards can also be a smart way to help a child or a relative establishes credit.

If you want to share a credit card, there are two ways to do it. You can open a joint account, or you can add an authorized user to your existing credit card.

Here are some similarities and differences between general credit cards and authorized user status, along with some of the risks and rewards of each.

Similarities

• Both joint account holders and authorized users can help you accumulate rewards faster and reach your spending threshold sooner.
• With joint accounts and authorized users’ credit cards, earned rewards are often stored in one place, making them easier to manage.
• The primary account holder is responsible for charges made by both the joint account holder and authorized users. For this reason, it’s important to only share your credit card with someone you completely trust.
• Joint cards and authorized user status can help your loved one build credit. A well-managed account can even improve another user’s credit score (as long as the account shows up on that person’s credit report).

Difference

• Some card issuers do not report account history to credit bureaus for authorized users. This can be problematic if you share a card because you want to help someone build credit.
• Responsibility for fees is different for joint credit cards. Both cardholders are fully responsible for all charges made on the account.
• Some card issuers let you add spending limits for authorized users. Joint cardholders always have access to the full credit limit. This is an important distinction if you want to limit the risk on a shared credit card.
• If an authorized user wants to be removed from the account, they can usually call the card issuer and request removal. The account is typically removed from the authorized user’s credit report at that time (if it was added in the first place). Joint account holders cannot be removed from the card, but can only close the account.

Unfortunately, closing a joint card will not remove it from your credit report. So if you’re hoping to erase a negative credit history by closing a joint account, you’re out of luck until that account reaches its credit report expiration date (usually seven years from date). late payments or other negative credit history). you are trying to escape).

Obviously, the safest way to share a credit card with others is to add an authorized user.

It’s also important to note that many card issuers have stopped offering universal credit cards, making these types of accounts harder to find, even if you want to open one.

Related: Benefits of adding a relative as an authorized user

When should you close a joint credit card?

If you open a joint credit card without fully understanding the risks, try to relax. A well-managed joint credit card may never cause you any problems (especially if you share the account with someone who shares your financial perspective). In fact, a well-managed joint credit card account can help both you and your co-cardholder build better credit.

Rushing to close a joint card for no reason is also not necessarily a good idea. But because of the risks associated with joint cards, it’s a good idea to try to reduce the balance in the account to zero as soon as possible (and continue paying off the full balance every month going forward).

That said, there are several reasons why closing a joint tag may be in your best interest:

• Are you going through a separation or divorce from your joint account holder.
• You co-signed for a relative who did not manage the account responsibly (e.g. late payments or high credit utilization).
• The card has a high annual fee (which you tried but couldn’t get waived) and the account benefits don’t outweigh the fees.

However, even if you have a good reason to close a joint credit card, doing so could harm your credit score.

Related: How to cancel a credit card

How to properly close a joint credit card

The reason closing a credit card account (joint or otherwise) can damage your credit score is because closing the account can increase your credit score. credit utilization ratio.

“Credit utilization” describes your available credit limit in use on your credit card account. When you close your card, you no longer have access to that available limit. As a result, if your credit report shows the above balance any credit card, your utilization ratio (also known as the balance-to-limit ratio) will increase.

The higher your credit utilization ratio goes, the worse it is for you. credit score. Your best bet is to pay off all of your credit card balances each month (preferably before the statement closing date so the $0 balance can be reported to the credit bureaus during the month). This payment strategy is not only good for your credit score, but it’s also good for your wallet.

Before closing a credit card account, you should definitely try to pay all your other credit cards to zero, if possible. This can help you avoid any hit to your credit score from a higher utilization rate.

Of course, sometimes closing a joint credit card just can’t wait. For example, when you’re going through a divorce, you may not want to be responsible for your ex’s new accusations. Closing your account can protect you from these potential problems.

Some people believe that closing a joint credit card also causes you to lose credit over the life of the account. In other words, some people believe that your credit history can be negatively affected by closing a credit card and – since that amount makes up 15% of your FICO score – it can affect your credit score. your.

Here’s the good news: Closing a credit card won’t shorten the length of your credit history — at least not until the account has been removed from your report for about a decade. The account will remain on your credit report, and the FICO scoring model (used by 90% of lenders) will continue to charge the card according to the average age of your account.

Related: What is a good credit score?

Bottom line

You should think carefully before logging into a joint credit card account with a family member, friend or relative. At the same time, you should think carefully about closing a joint credit card account (or any credit card account), even if you have a good reason to end the financial relationship.

Related: Should my partner get their own card or be added as an authorized user?