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Credit scores and joint accounts: what you need to know

Sunday roast and gravy. Tea and milk. Netflix and chill. These are some epic combinations. But, credit scores and joint accounts? Not so much.

Joint accounts have several benefits when it comes to making your financial life easier. If you’re married, living with a long-term partner, or sharing accommodation with someone you trust fully, a joint account can streamline processes for you. It can make it easier to share expenses, like paying your rent or mortgage, bills, food and other spending.

However, there are potential implications that need to be considered before you open a joint account. Rushing into this kind of decision can have a major impact on your future financial position if things go wrong. Here’s everything you need to know about joining credit scores and joint accounts, and how you can make sure your financial footprint is safe whatever happens in your personal life.

credit scores and joint accounts
Joint account goals

Things to Consider Before You Open a Joint Account

There’s no denying that a joint account can make life easier. For example, if you’re paying your rent or mortgage with another person then having a joint account is ideal. You can fund it each month, cover expenses, while both of you can see what is happening in the account. 

On the contrary, paying from one person’s account and then having to transfer money between each other is messier. With shared bills and other expenses, it can become complicated and time-consuming to calculate what each person owes.

However, just because something is easier, it doesn’t mean that it is always better. Opening a joint account with other people can have a massive impact on your credit score. Therefore, there are several things to consider before you open a joint account.

Do You Trust the Joint Account Holder?

When you open a joint account, you’re giving the other person access to your money. Plus, you also give them the ability to cause some serious damage to your credit score if things go wrong. It’s important that you trust the person you’re opening a joint account with to have your best interests at heart.

Do You Need One?

Consider how many transactions a month do you truly need to share with another person. Try counting your expenses on paper for a month, or maybe use an app like Hyperjar to share the costs. Only open a joint account if these have worked well and you know you can trust the person.

What Will the Rules Be?

It’s vital that both people understand the purpose of the joint account. For example, you might agree in advance that the joint account is only for shared rent and mortgage payments. Make sure you both keep to these rules and check-in with each other before making any other expenses.

How Credit Scores and Join Accounts Work Together

As soon as you open a joint account with another person, you’re linked to their financial history and credit score. In fact, once you have a joint account, you’ll also have a joint credit rating with that person. There are several advantages and disadvantages to this depending on the situation you find yourself in:

Advantages of shared Credit Scores and Joint Accounts

  • Higher Scores. If both holders of a joint account have high credit scores, this can further improve with healthy joint spending habits. As such, you may find it easier to be accepted for credit in the future with more favourable terms.
  • Mixed Scores. If one person has a lower credit score, a joint account in good standing can help to improve this score over time. 

Disadvantages of shared Credit Scores and Joint Accounts

  • Shared Scores – Joint account holders are equally responsible for the standing of an account. Therefore, if one person fails to make payments, increases debt, or incurs charges, both people will see their credit scores decline. 
  • Relationship Changes – If a relationship is no longer in good standing, both people will continue to be affected by negative situations that occurred while the joint account was active. For example, if one person has sent the account into an overdraft, the other person will also be responsible for paying it off. Likewise, jointly affected credit scores can negatively impact an individual’s solo application for credit in the future.

Things to Consider Before You Close a Joint Account

Closing a joint account doesn’t necessarily mean that a relationship has ended. However, there are a few things to consider before you do close a joint account, even if you remain on good terms with the joint holder.

Is the Account in Good Standing?

Perhaps the most important thing to consider before closing a joint account and credit record is whether the account is in good standing. For example, if one person has made the account overdrawn, both account holders are held responsible. This covers all debts and charges that may be associated with the account. 

Have Direct Debits and Standing Orders Been Covered?

If you’re closing a joint account, it’s important to make sure that any direct debits and standing orders have been set up to be paid by an alternative account. If not, you’ll find your credit score plummeting due to late or missed payments and this will affect you as an individual going forward.

Are Any Funds Fairly Shared?

If there are any remaining funds in the account, both account holders should come to an agreement about how the funds will be split prior to closing the account.

Ultimately, opening a joint account is something that should only be done with a person that you trust. A joint account that is kept in good standing by two people with a good credit history can be majorly beneficial. However, there are clear downsides to opening a joint account because you’re putting your future credit rating in the hands of another person who could, if acting in a certain manner, negatively impact your credit rating as a solo person for a long time.  

If you do decide to open a joint account then make sure you’ve spent some time with the other person to discuss the purpose of the account, the spending rules, and any financial issues each person may have had previously that could negatively impact the other person.

Want to know more about credit scores? Check out how your credit score is calculated here, what credit score you need for a mortgage, and how can you improve your credit score.

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