How sharing credit after marriage can affect your credit report, credit score and your relationship.
Finances are a big part of any relationship and financial actions need to be considered before big decisions are made. Often one of those decisions is whether or not to open a joint account. Is 2 really better than 1 when it comes to combining your money? How may this affect your credit report and credit score?
Since a joint bank account is co-signed by two individuals, you both share equal access to the account. This can help ease certain aspects of your personal finances, but it can also add difficulty to others. Let’s take a look at both sides – the advantages and disadvantages of a joint bank account.
PROS of Joint Accounts
- Cash Flow Tracking. With a joint bank account, you both know what bills are getting paid and who is paying for what. Money entering and exiting from just one account greatly simplifies tracking the cash flow.
- Relationship Strengthening. Sharing an account can be a great example of “what’s mine is yours”. By understanding and agreeing that the account holds “our money” rather than “my money”, you’re beginning your financial relationship on a positive note.
- Lower Bank Fees. Unless you both have free checking accounts, you could be paying a fee on each account. If you have to keep a minimum balance to avoid a monthly fee, maintaining only one can help increase the money you have to spend, save or invest.
- Accountability Remains Constant. Always knowing what each of you is spending helps keep you both of you accountable for your purchases. Knowing the money in the account is “shared” makes it more likely that you’ll both discuss purchases. This can help you stay within your budget and also ease financial tension within a relationship.
CONS of Joint Accounts
- Overdrafts. Since a joint account doesn’t mean a joint credit score (every person has his or her own individual credit reports and scores), if one of the parties overdraws from the account, you could be charged overdraft fees and additional interest. In addition, if this happens on a consistent basis, the bank can report it to one or more credit bureaus which could have a negative effect on your credit score.
- Separation and Divorce. Not pleasant things to think about, but they happen to more than half of married couples. If you have a joint checking account and your “ex” partner denies you access to your money, bills may go unpaid, which could result in negative information on your credit report and a lower credit score.
- Creditors and Debt Collectors. If your partner finds herself or himself having unforeseen financial problems, creditors and debt collectors could go after the money in your joint account. And since you’re both signatories on the account, both of your credit scores could suffer.
- Inherited Debt. Typically you’re not responsible for the debts of your relatives when they pass away. However, if you’re a cosigner on an account and/or loan, it’s a bit different. If you share an account with someone who dies and there was a balance of any kind, you could inherit the debt. If you can’t or don’t pay off that debt, your credit score can fall.
Although most of this discussion has addressed pros and cons of a joint bank account, it’s important to note that many of the same pros and cons relate to most types of accounts – including debt (credit card, mortgage, auto loan, etc.). So it’s always a good thing to do your research, before and after getting married, to make sure opening a joint account of any kind is the right choice.
See what people with joint accounts are saying the myFICO forums. Just click the link, search for “joint accounts” and check out the experiences (and the advice) that myFICO members are sharing.