Are you considering opening a joint credit card with your spouse or loved one? Before you make this decision, make sure you think about how it might affect your finances. Joint credit cards can be a great resource for building credit responsibly, but they can also be a curse if you’re not careful.
Anytime you open a credit card in your name, you’re fully responsible for any balance owed. Even if you’re not the cardholder who made the purchase, you’re still responsible. For many people, a joint card isn’t a good choice. Australians are currently struggling with over $45 billion total in credit card debt, showing just how important it is to think through your financial options.
It’s important to not only understand what it means to get a joint credit card but also to carefully determine if it’s the right choice for you. Your financial decisions all have consequences on your credit and future, so make sure you’re making a smart choice.
What is a Joint Credit Card?
First and most importantly, what even is a joint credit card? It’s similar to a joint transaction account or a joint savings account. Both parties will need to apply and qualify for a credit card, and then both users are on the same account.
With a joint credit card, it’s important to remember that both account users are fully responsible no matter who makes the purchases. For instance, if Sue and John are married and they have a joint credit card, it doesn’t matter if Sue is the only one who uses it. At the end of the day, they’re both responsible for paying off the card. Any issues with the credit card will reflect poorly on both individuals’ credit history.
Because joint credit cards share liability, many banks are hesitant to offer joint credit cards. They much prefer for only a single person to be responsible for a single line of credit. That’s why there are a lot of other ways to share an account between multiple people.
What Are Alternative Ways to Share a Credit Card?
As we mentioned before, many banks prefer to avoid joint credit accounts since they can be a liability. Instead, they prefer to offer either authorised users or co-signer options. Here’s how these two alternatives work:
- Authorised user – An authorised user is anyone who is allowed to use someone else’s credit card without being responsible for the bills. They can get their own cards printed with their own names, but the credit impact will be much greater for the primary account holder.
- Co-signer – Next, a co-signer is someone who helps another person gain access to credit. They’re not the primary borrower, but they agree to accept liability for debts on the account if the primary borrower doesn’t pay. In this way, both individuals have legal responsibility for paying, making it similar to a joint account.
In fact, these alternatives are so common that you’ll see them much more frequently than you will a joint credit card. Usually, you only hear about joint accounts in reference to savings or transaction accounts.
Why Share a Credit Card?
Why might you consider a joint credit card when there are other options available like those we outlined above? There are a few reasons that might make it a tempting option. Here are the most common reasons behind opening a joint credit card:
- Help with lower credit – If one of the borrowers has lower credit, having someone with higher credit apply with them can improve the odds of being approved.
- Simplified records – For married couples and families especially, having the account holder’s combined purchases on a single statement can make organising finances and budgets much easier.
- Rewards – Finally, both cardholders will have access to all of the features and perks of the card like travel points, cash back, and discounts.
Of course, with these benefits come some risks. The biggest risk is that one of the cardholders will use the account irresponsibly, racking up too many purchases they’re not able to afford. In addition, separating the account can become a challenge down the line, such as in the instance of divorce or death.
Is a Joint Card Right for You?
Ultimately, you’ll need to ask yourself if opening a joint card is really the right option for you. Not only should you consider your own financial situation and goals, but also those of your co-account holder.
Ask yourself some key questions. Are you both prepared for this financial commitment? Is this a better option than just adding an authorised user? Do both borrowers have an agreement on how the card will be used?
If you do your research and crunch the numbers, you can find the right joint credit card for your situation. Finally, don’t be afraid to talk to someone before taking this step. At Debt Busters, we have over 15 years of experience helping Aussies gain control of their finances and credit. You should always review your options before taking on more debt than you can afford. Contact our friendly experts today on 1300 368 322 to get started.