If you are in the process of getting a divorce or separation, it will be important to pay special attention to the status of your credit accounts and credit card debt. If you
have joint accounts with your spouse, it's important to make regular payments so you don't end up with bad credit. As long as there is a outstanding balance on a joint account, you and your spouse
are responsible for paying it.
Knowing and understanding the different kinds of credit accounts opened during a marriage may help you understand the potential benefits and negative effects of each. There are two types of credit accounts, which are joint and individual. With either, you can permit authorized users to use the account.
When you apply for credit, such as a mortgage loan or credit card, you will have to choose from the two types of credit accounts.
The first type is a individual account in which the creditor considers your assets, income and credit history. Whether you are single or married, only you will be responsible and held accountable for paying off the debt. The account will appear on your credit report, and may appear on the credit report of any "authorized" user. However, if you live in a community property state (California, Arizona, Idaho, Nevada, Louisiana, New Mexico, Washington, Texas or Wisconsin), your spouse and you may be responsible for debts incurred during the marriage, and the individual debts of your spouse may appear on your credit report as well. A individual account can have its advantages and disadvantages. If you work part-time, are not employed outside the home, or have a low-paying job, it may be difficult to demonstrate a strong financial picture without your spouse's income. However, if you are being responsible, no one else can negatively affect your credit record if you open an account in your name.
The second type is a joint Account in which your financial assets, income, and credit history (along with your spouse's) are considered for credit. If the account was opened after June 1, 1977, both your spouse and you are responsible for joint account debts. A creditor who reports the credit history of a joint account to credit bureaus must report it in both names. A joint account has its advantages and disadvantages. An application combining the financial resources of two people may present a stronger case to a creditor who is granting a credit card or loan. However, each is responsible for the debt since two people applied together for the credit. This is true even if a divorce decree assigns separate debt obligations to each spouse. Former spouses who run up bills and don't pay them can hurt their ex-partner's credit histories on jointly-held accounts.
Many consumer wonder how being added as a account user will effect their credit. If you open an individual account, you may authorize another person to use it. If the account was opened after June 1, 1977 and if you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your name as well as in your spouse's name. A creditor also may report the credit history in the name of any other authorized user. There are some disadvantages and advantages to this. User accounts often are opened for convenience. They benefit people who might not qualify for credit on their own, such as homemakers or students. While these people may use the account, you and not them are contractually liable for paying the debt.
If you get a divorce, and your former spouse was an authorized user, you may want to close accounts or joint accounts or ask the creditor to change these accounts to individual accounts. According to the law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, deny or extend you credit. In the case of a home equity loan or mortgage, a lender is likely to require refinancing to remove a spouse from the obligation.
Just remember, when it comes to divorce and credit and you have joint accounts with your spouse during this time, it will be important to make regular payments so your credit record won't suffer.