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Joint, Individual or Authorized User....what are the pros/cons?

[ Edited ]

I have seen consistent recurring posts of new forum members asking about the differences, benefits and risks associated with Joint Accounts, Individual Accounts and Authorized Users on existing accounts.


Here are a few pros/cons of each for your consideration:

Individual account: 

Pretty self explanatory.  This means the account holder is individually responsible for the account and will only report on their credit.  Some creditors will ask for personal income for consideration to individual credit apps and some ask for household income as the basis for CL review.  Howver, if they ask for household, this does not make anyone else in the household responsible.


This is the safest form of credit for the individual.  In the event of spousal death, divorce or dispute, the holder takes the credit with them unaffected by the actions of the spouse.  Also, if the spouse has poor credit or finances, it will not affect the other individual's credit.


Joint account:

A joint account has joint responsibility, regardless of who privately "agreed" to make the payments between spouses.  If the account is late, closed, charged off, goes to collection, has a balance, high utilization, over the limit or anything else, it WILL be reported on both parties credit and may not be disputed due to a disagreement between spouses or divorce.  It is permanent.


Joint credit usually cannot be converted to individual, with few exceptions (BoA does allow under some credit worthy circumstances).  So, if divorce or dispute arises between spouses, the account will have to be closed in order to mitigate the shared responsibility.


Deciding on whether to use joint credit is kind of like deciding on whether to have a prenuptial agreement.  Avoiding joint credit is the safe way to go, in the same way that a prenuptial can protect financial assets, maintaining individual credit protects the individual credit assets.


There can be circumstances in which joint credit is useful.  However, great care and consideration should be given to this.  The consequences of joint credit are usually permanent and cannot be reversed, except to close and lose the account.  And the irresponsible use by the other spouse affects both.


The potential use of a joint account, such as adding a spouse as co-applicant/joint to an existing account would be to establish an aged credit reference.  This is completely different than the FICO calculations of credit utilization.  A loan officer only reflects upon individual or joint credit as a reference.  So, while an authorized user account provides approximately the same FICO benefits as a joint account, an authorized user account does NOT provide any past credit reference benefits that a loan officer considers as a part of an application.  When an LO reviews history, they look at your past accounts managed personally or jointly, but authorized user accounts will be IGNORED.


Authorized User:

This method authorizes somebody other than the account holder to use the account.  In many cases this will be reported to the credit of the authorized user, and will affect their FICO, for good or bad.  However, an authorized user may be removed from the account at a later time, and thus the account can be removed from the authorized user's credit should they desire, which a joint account cannot be.


Uses of Authorized user may to help establish a credit profile where little exists, in order to begin establishing personal credit.  The balances reported on an authorized user account will help or hurt FICO utilization and number of balances depending on its use, so it is important to make sure that if you are being added to an account as AU, that it is clean (no derogs) and is not maxed or reporting high utilization, otherwise there really is not much benefit to being added, except to use the card potentially.


EDIT UPDATE:  Sometimes the AU may not see the account in their CR even though the CCC reports it.  This can often be the result of the AU having a different address than the statement address of the CC account.  If you add an AU or are added as an AU and your CR reported "known addresses" do not include the address of the AU account, then it most likely will NOT get reported to your CR, unless the CCC required the AU to provide a SS#.  Otherwise there is nothing to link the AU to the account.....names are not unique enough, it must have some combination of information like name and address.

Message Edited by txjohn on 04-07-2009 12:22 PM

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