It is crucial to pay special attention to the status of your credit accounts when you are having issues leading towards a divorce or separation. If you've recently been through a divorce, or are considering one, you might want to be aware of issues involving your credit. Knowing the different types of credit accounts opened during a marriage may help you understand the potential advantages and pitfalls of each. You will find three different types of credit accounts: Individual, Joint, and User (co-signed). It is possible to permit authorized persons to use the account with either. When you apply for credit, whether it be a charge card or a mortgage loan, you'll be asked to select only one type, an Individual or Joint Account. Individual Account: Your earnings, assets, and credit history are considered by the creditor. Whether you are married or single, you alone are responsible for paying off your debt. The account will show up on your credit report, and may also appear on the credit report of any "authorized" user. However, if you reside in one of the community property states like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you and your spouse may be liable for debts incurred throughout the marriage, and the individual debts of one spouse may appear on the credit report of the other. Advantages/Disadvantages: If you're not employed outside the home, work part-time, or have a low-paying job, it might be challenging to demonstrate a solid financial picture without your spouse's income. However, if you open an account in your name and are responsible, no-one from your past can adversely affect your credit record down the road. Joint Account: Your income, financial assets, and credit history, as well as your spouse's, are things to consider for a joint account. Regardless of who handles your family bills, you and your spouse are responsible for seeing that all debts are settled. A creditor who reports the credit history of a joint account to credit bureaus must report it in both names (if the account was opened after June 1, 1977). Advantages/Disadvantages: A credit application combining the financial resources of a couple may present a stronger case to a creditor who is granting a loan or charge card. But because a couple applied together for the credit, each is responsible for the debt. This is true even when a divorce decree assigns individual debt obligations to each spouse. Former spouses that run up bills and don't pay them can hurt their ex-partner's credit histories on jointly-held accounts. Account "Users" In the event you open an individual account, you may authorize another person to use it. 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 spouse's name as well as in yours (if the account was opened after June 1, 1977). A creditor also may report the credit history in the name of any other authorized user. Advantages/Disadvantages: User accounts often are opened for convenience. They benefit individuals who might not qualify for credit by themselves, such as students or homemakers. While these people may use the account, you not they, are contractually liable for paying the debt. Considering divorce or separation? If you're considering divorce or separation, one of the primary things you ought to do is pay special attention to the status of your credit accounts. If you maintain joint accounts during this period, it's important to make regular payments so your financial record won't suffer. As long as there's an outstanding balance on a joint account, you and your spouse are responsible for it. You might also want to close joint accounts or accounts in which your former spouse was an authorized user, or, ask the creditor to convert these accounts to individual accounts. Legally, a creditor cannot close a joint account because of a change in marital status, but must do so at the request of either spouse. A creditor, however, doesn't have to change joint accounts to individual accounts. The creditor can require you to re-apply for credit on an individual basis, and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation. About the Author: Daood Timazee, Jr is a Certified Financial Planner licensed in the state of New Jersey. He has a web site called Credit Report Repair Software since 1996 located at www.CredirtReportRepairSoftware.com and maintains it with changes in credit repair laws.
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