Congrats! You and your partner just moved in together and it’s time to decorate. How are you going to split the cost of transforming your shared dwelling into a homey, Nordic (Ikea=hygge!) nook? As you spend hours/days/weeks teaming up on assembling furniture, your shared expenses are mounting. There’s – rent, utilities, groceries, date nights, pets, Netflix – innumerable expenses! Must you resign yourself to spending your days on Venmo, balancing accounts with your partner? Thankfully, there’s another way. Perhaps it’s time to open a shared credit card.
There are two ways of joining ”buy now/ pay later” forces: partners can open a joint credit card, or one partner can hop on the other partner’s card as an authorized user. The method you choose will affect your credit score and determine who is legally liable for the bill, so read on to make an informed decision about the best way to commingle credit.
What Does It Mean to Be an Authorized User?
When you add an authorized user to your credit card, that person gains charging privileges on your account. If you’re in good standing with your card issuer, you can usually add an authorized user through your card’s online portal or by contacting customer service. Credit card companies usually do not check the new authorized user’s credit when adding them to an account.
An authorized user will receive a card in their name that’s tied to the primary card holder’s account. Authorized users gain some, but not all, of the privileges granted to primary card holders. An authorized user probably won’t be able to make changes to an account, like requesting a credit increase or adding another authorized user.
Here are a few things to consider before adding an authorized user to your credit card.
- Liability: An authorized user is allowed to make purchases with a card, but they’re not responsible for paying the bill. Only primary card holders are legally responsible for the debt on an account. Additionally, authorized users can remove themselves from an account at anytime, but primary card holders cannot. If you choose to add an authorized user to your account, remember that despite whatever payment agreement you’ve come to with your partner, and regardless of who made which purchases, only you will be liable for the bill.
- Building Credit: Under most issuers’ policies, when you become an authorized user, the account payment history is added to your credit report and factored into the calculation of your credit score. This might boost your credit, or it could hurt your credit. For example, a parent with a high credit score may add their teenagerto an account as an authorized user to help their kid build credit. But if you find yourself tied to the account of a primary card holder who doesn’t stay on top of payments, your credit score can suffer.
What Is a Joint Credit Card?
A joint credit card is a card for which both card holders are equally responsible. To get a joint card, you’ll most likely have to open a new account. Most issuers do not allow you to add a joint user after opening an account. When applying for a joint card, both you and your partner will be subject to a credit check.
By opening a joint account, you and your partner are tightly tying your finances together. This option only works for partners who trust their financial relationship will last long term.
Fewer credit companies offer their customers the option to open a joint account. Customer service representatives may be unfamiliar with the request and assume you’re asking about adding an authorized user, if you inquire about a joint account. Make sure to clarify.
Here are the nuts and bolts of joint credit cards:
- Liability: Both card holders are responsible for the account balance, regardless of who spent the money. Worst case scenario: if your relationship takes a dark turn and your partner doesn’t pay their share, the card issuer can come after you for the debt. If you don’t pay, you could be sued.
- Building Credit: Credit companies report joint card account histories to the credit bureaus on behalf of both card holders. If you and your partner stay on top of payments, it will benefit both your credit scores. Late payments will negatively impact both your credit scores.
How Are Credit Scores Calculated?
Credit scores are tools designed to represent your credit risk, or how likely you are to pay bills on time. Your credit score can affect many aspects of your financial life—for example, the amount of the deposit you’ll put down when turning on your electricity, your ability to obtain loans, and the rate of interest lenders will charge. Therefore, it’s important to understand how using a credit card can affect your credit score.
Here are some key factors:
- Payment History: Having a track record of timely payments will positively impact your credit score.
- Age of the Account: Maintaining an account for a long period of time can positively impact your credit score. Closing a young account can negatively impact your credit score.
- Credit Utilization Ratio: This is the ratio of the amount of money you owe versus your overall credit limit. Try to keep this ratio low (30% or less) and avoid maxing out the card.
How Should We Split Rewards On a Shared Credit Card?
Many credit card companies offer perks to their customers. Typically, users gain points per dollar spent. Users can then redeem these points for airline miles, cash, gift cards, insurance on rental cars, etc. Before sharing a credit card, you and your partner should decide how you will split the rewards.
Which Credit Card Companies Allow for Authorized Users? Which for Joint Accounts?
Many companies including American Express, Capital One, Chase, Citi, Discover, Wells Fargo, and Bank of America allow customers to add authorized users to their credit cards. If you’re looking for a joint credit card, your options are becoming fewer and farther between. Wells Fargo used to offer a joint credit card but no longer does. Bank of America does not offer a co-applicant option at the time of application. However, upon approval, you may call the number on the back of your card to request a co-applicant be added to your account.
No Matter How You Choose To Share Credit…
Do your best to manage money well! Good spending habits will serve both you and your partner in the long run. Remember to communicate with your partner about your finances and respect the trust you’ve put in one another by sharing credit. Financial tools can help you manage shared credit and accelerate your journey toward building a solid credit score.