ASK A FINANCIAL PLANNER: 'Should I open a joint credit card with my spouse?'
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Certified financial planner Sophia Bera answers:
I just got married. My spouse and I want to open a joint credit card. Should we open one, or should one of us become an authorized user on the other's card? What's the difference?
Congratulations, newlyweds! I’m glad that you’re thinking seriously about establishing excellent credit.
Keep in mind that while there are joint lines of credit, there’s no such thing as a joint credit history. No matter what you decide to do, you and your spouse will have your own credit scores.
But having joint credit cards or loans means that the actions of your spouse can affect your score, and vice versa.
First, let me explain the differences, upsides, and downsides of joint credit cards versus adding an authorized user.
Joint credit card: In this case, you both apply for the credit card together and share the responsibility of paying the bills — meaning you’re both on the hook if you accumulate any debt. Not using the card responsibly will affect both of your credit scores, but on the plus side, being diligent about paying your bills will raise both of your scores.
Now to be the bearer of bad news (sorry, that’s my job sometimes!): If you and your spouse separate and you close the account, it could lower your credit limit, raising your utilization rate and negatively affecting both of your scores. If one of you dies, the other person must shoulder the responsibility of paying off any debt on their own.
I know it’s not fun to think about the sad stuff, but it’s something to consider as you make your choice. While you gain convenience when you share a credit card, it’s important to read the fine print.
Authorized user: Let’s say you’re the credit card holder and you add your spouse as an authorized user. This could be a good option if you have excellent credit, but your spouse’s credit score is low. The authorized user can piggyback on your account, and if you both use the credit card responsibly and pay bills on time and in full, your credit remains great and your spouse’s score can go up. Win-win!
And now for some potential downsides. You’re the principal cardholder, and so you’re 100% responsible for all charges, even those made by your spouse. You’re also completely responsible for any debt accumulated, so if your spouse isn’t a responsible credit user, their spending could negatively affect your credit score.
So what should you do? If you’re both responsible users of credit, a joint credit card can make paying for joint expenses easier. If one of you has a much lower credit score, adding an authorized user is a good option.
Just remember to communicate about what you use the card for so when the bill is due, there are no unfortunate surprises. One spouse shouldn’t hand over total control of the family finances to the other — I recommend you both keep track of where your money is going.
I also suggest you both maintain separate credit cards as well. Not only can you use those for your own expenses, but if you like to rack up credit card rewards points, both of you working towards reward bonuses means double the points! If you’re using credit cards responsibly, you should make sure you’re maximizing your credit card rewards as well.
Sophia Bera, CFP® is the Founder of Gen Y Planning and has been quoted in The New York Times, Forbes, Business Insider, AOL, The Wall Street Journal, and Money Magazine. She tweets, travels, and loves helping millennials manage their money more effectively. Curious? Sign up for the free Gen Y Planning Newsletter.