Most credit card accounts are in an individual’s name. One person is the authorized cardholder, and that person has full responsibility for any activity in the account. Only they can use the card to shop in a store or online. Only they can do a balance transfer or initiate a cash advance. If it is a rewards card they manage the rewards and enjoy them for themselves.
They are also the person who is designated to take advantage of card membership perks and benefits, or to redeem rewards or cash-back if the card offers those features. Should the card be lost, stolen, or used fraudulently then that one cardholder is the only victim. If they make a purchase and then return it for a refund, the credit is applied to their account. In other words, they basically own the account as their personal and private financial tool. They can keep the account open or, if they choose, close it down.
But it is also possible to share all of these different kinds of cardholder privileges, benefits, and financial responsibilities with another person – as long as the company that issues the credit card is aware of that arrangement and fully authorizes it. That type of shared credit card account is technically referred to as a “joint account.” There are both positive reasons to open a joint account, as well as some potential issues or risks. You need to be aware of these so that entering into this kind of joint arrangement does not create unwanted or unexpected financial problems for you or for the other person on the account.
The Joint Cardholder Application Process
- When filling out a credit card application, you simply select the “joint account” option – if one is available to you – on the application form. You’ll need to provide financial information and other data – such as birthdates and Social Security numbers – for both persons.
- Then the card issuing bank will run a credit check on both of your and verify other information such as your monthly income. Based on the credit worthiness of both of you a decision will made to issue the card – and if there are credit problems with one or both of the persons the application may be rejected.
(If a joint account is rejected, one of the parties – the one with the best credit history – may still qualify.)
Joint Cardholders vs. Authorized Users
A joint account is how it sounds: joined. Two people equally share the account, and that includes sharing responsibility for making all of the payments and adhering to all the terms and conditions imposed by the card issuer. Since both people are on the account, either one can use the card in any way that they want.
They can go shopping, for example, and use all of the credit that is available on the card. That could max-out the card, so that the other card member would not be able to purchase anything with it, for example, until some of the balance is paid to free-up more credit. While that may not happen, it is just an example to illustrate that each of the joint cardholders have power over the whole account.
The term “authorized user” may sound like a joint cardholder arrangement, but it is not. Knowing the difference is important if you are considering a joint account, because a joint account is a much more involved legal and financial arrangement.
Unlike the joint situation explained earlier, adding an authorized user to your individual account does not give that user the same rights and responsibilities. The primary cardholder is the one responsible for making the payments, for instance, and they are the only one who can redeem rewards such as cash-back or travel points earned. Authorized users have permission to use the card to do typical credit card transactions like making purchases. Beyond that, the account is still essentially the sole responsibility of an individual – whereas joint accounts mean joint responsibility and shared accountability.
Examples of a Joint Arrangement
Adding a spouse or child on a joint account can help you manage family finances, and can simplify bill paying. If your spouse has bad credit and you have good credit, a joint account may help them get a credit card – despite their credit blemishes. That’s because the bank will evaluate the application based on both of your credit scores.
When you pay bills together as a couple who splits your finances, joint accounts make bill paying easier since you can just do it all with one account. At tax time you’ll have a single account with monthly and annual statements, too, which can simply tax preparation for married couples.
Send your kid off to college with a joint credit card that she or he would not otherwise have been able to qualify for because they don’t yet have established credit history. Then they can pay for things like textbooks and car repairs without you sending them money. You can also set up alerts on the account, so when they do use the card you see an itemized detail of the transaction.
If they start splurging on pizza, you’ll know. If they use the card at the emergency room, you’ll find out right away. Your youngster will be able to learn how to use a credit card responsibly, with oversight from you to guide them. But they will also be building up their own credit history so that eventually they can have their own non-joint credit card.
Credit Reporting on a Joint Account
The activity on a joint credit card appears on the credit reports of both the joint cardholders, and that subsequently impacts the credit scores of both. That can be a great help for a cardholder with weak credit who is joined-up with someone with good credit. If one of the cardholders makes payments on time and pays down the card balance on a regular basis, for example, both of them get the credit for that.
Having a higher credit score comes with perks, because it may qualify you for more attractive interest rates and more user-friendly terms and conditions. It is important to understand that joint accounts are a two-way arrangement, though. So if you have good credit and join up with someone who misses payments or creates other credit history problems, that will adversely impact your own credit profile.
Potential Problems with a Joint Credit Card
Both people are legally responsible for making the payments, and the bank will not force both of you to share the payment equally. Here’s an example to help you understand. If you and your friend have a joint account, and they go bankrupt and don’t have any money to pay toward the outstanding balance, you will be entirely responsible for repaying the entire balance.
That will be true even if none of those purchases charged to the account were made by you and all of them were made by your friend. If you don’t pay you could even be sued and have your wages garnished. That may seem unfair, but it’s how joint accounts work. So if you not comfortable with that arrangement you may not want to open a joint account.
Joint Accounts and Estate Planning
Any financial account shared by more than one person – be it a checking account, savings account, or credit card – has legal implications and rules that must be followed. One way that these kinds of accounts can get complicated is if one of the signers on the account dies. That may be a morbid thought, but if you are setting up a financial account it is something that both of you should realistically consider.
Thinking about it while you are both healthy means you have a chance to deliberately choose the arrangement that will be easiest to manage in the event that something unforeseen should happen. A joint credit card account can be a wonderful and convenient solution in this type of situation, because it offers a lot of flexibility for the cardholder who survives and has to deal with these critical financial affairs while still also trying to grieve and heal.
Avoiding Probate Court
Normally if someone dies, whatever financial assets they have must be disposed of or distributed according to laws that are enforced by the court system. Banks also comply with these laws, so if someone dies they will not allow anyone else to have access to their account until the court – specifically, a probate judge, gives written permission.
If there is a Last Will and Testament then the court will first review that document, which can take weeks or even months. If there is not Will, then the state where the deceased lived will go through a process of dividing up the assets – usually giving them to the next of kin. All of these procedures can be time-consuming and complicated. But if you know for sure that when you die you want someone else to have total access to your credit card account, there is a simple way to bypass all of this legal complexity and intervention from the probate court system.
Here is how it works with a joint account. If one of the joint card members dies, it is not necessary to go through complex legal procedures to access the account or close it down. The other surviving cardholder on the account has full power to do whatever they want, including redeeming any cardholder rewards that may have accumulated in the account such as frequent flier points or cash-back rewards.
The Bottom Line
There are pros and cons, and these need to be taken into consideration before deciding whether a joint account is right for you. But joint accounts offer some really unique and convenient benefits for those who feel confident enough to enter into a committed financial partnership with each other. They can help each of your in a multiple ways that may not be available through a normal credit card account.