Understanding the different kinds of credit accounts opened during a marriage will help you make the best choice for you in regards to your credit.
I’m not trying to be a downer, but divorce and death do happen. You become exposed when your credit is not strong on its own. If you have joint accounts then your credit rating can die along with the separation or death of your spouse. What’s important for you is to have credit accounts supported solely by your credit history.
There are four types of credit accounts: individual, joint, authorized user and co-signer. When you apply for credit, you’ll be asked to select either an “individual” or a “joint” account. Having individual credit cards is ideal; individual mortgage and auto loans are also better than jointly held accounts. However, many times the combined income of both spouses is needed to get approval or a better rate. This means you may not have the luxury of getting the loan individually, but should do so if it does not mean getting a higher rate as a result.
Facts to consider:
Joint credit cards come at a high price to your credit rating without much benefit over individually held cards.
Credit cards can usually be obtained just as easily whether joint or individual.
Death of a spouse can leave you standing in the credit line by yourself.
If you don’t have a strong credit rating on your own you will be left in the dust come approval time.
Even if you already have established joint credit, it’s not too late to make a choice that will positively affect your future.
Action steps to separate joint accounts:
- The first thing to do is to call all of the credit card companies where you have joint accounts.
- Ask them what it would take to separate your credit card from your spouse’s while keep the same opening date on both accounts. (Assume in this case that we have a couple with a Chase Visa that was opened jointly on January 1, 2016. The best possible outcome you are looking for is that the bank agrees to give each of you your own separate credit card with the opening date remaining as January 1, 2016.) Unfortunately, this is rarely going to happen.
- Ask the following questions listed below to the bank representative. As they say “no” to each of these suggestions, ask them if they can do the alternative step below the one they declined. Keep moving down until they say “yes.”
Ask: My spouse and I want to separate our joint credit card in order to have our credit rating built separately from one another. We would still like to both have a credit card with your bank, but we want the cards to be issued to use individually, not jointly as it is now. We want to accomplish this without lowering our current credit score. Ideally we would like to have the following status in regard to each credit card as to how they are reported on the credit report.
Best option to suggest: New credit cards issued to each spouse independent and separate from one another, both maintaining the same opening date as the original card of January 1, 2016.
Please Note: If the bank agrees, assume they would want to split the current limit in two by giving half to each spouse. The most likely response from the bank will be “no,” with them saying that you would need to pay the credit card to zero, close the card, and then apply separately for a new credit card with no guarantee that either of you will even get accepted for the new card. (Remember, credit is a privilege, not a right. Even though you were approved in 2014, this does not guarantee that you will get approved today. Policies change on a whim with banks. There are no guarantees!)
Next best option: One spouse is allowed to keep the current credit card in their name with the original opening date showing as January 1, 2016. Remove the other spouse who will be told to apply for a new credit card.
Please Note: At least one spouse would keep the opening date of January 1, 2016. The other spouse may take a hit on their credit score since they would either lose the aged credit card on their credit report or replace the aged card with a non-aged card; either way their score will go down some. The good news is that the accounts would be separated and each could build their own individual credit rating from that point forward. Sometimes you need to sacrifice for the greater good of getting ahead in the long run.
Worst-case option: The bank says that the only thing they can do is close the account altogether and have both spouses apply for a new card on their own, which they may or may not get approved for.
Please note: This will most likely be the only option the bank will offer you. This is where you need to make a judgment call and decide how important it is to you to have separate credit that is not going to be at risk in the future, whether it be a result from a divorce or whether it be from the death of a spouse. Personally, I think it is still a good option due to the importance of having your own separate credit rating that can stand on its own no matter what; however, you need to make that choice for yourself.
By Carl E. Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp., a Zillow five-star lender. He is a residential and reverse mortgage financing expert and a deal maker with over 28 years industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y
