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If you've recently been through
a divorce. or are contemplating one. you may want to look closely at issues
involving credit. Understanding the different kinds of credit accounts opened
during a marriage may help illuminate the potential benefits. and pitfalls. of
each.
There are two types of credit
accounts: individual and joint. You can permit authorized persons to use the
account with either. When you apply for credit. whether a charge card or a
mortgage loan. you'll be asked to select one type.
Individual or Joint
Account
Individual Account:
Your income, assets, and credit history
are considered by the creditor. Whether you are married or single, you alone are
responsible 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 (Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), you and your
spouse may be responsible for debts incurred during 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 may be difficult to demonstrate a strong financial picture without your
spouse's income. But if you open an account in your name and are responsible, no
one can negatively affect your credit record. |
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Joint
Account: Your income,
financial assets, and credit history. and your spouse's. are considerations for
a joint account. No matter who handles the household bills, you and your spouse
are responsible for seeing that debts are paid. 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). |
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Advantages/Disadvantages:
An application combining the financial resources of two people
may present a stronger case to a creditor who is granting a
loan or credit card. But because two people applied together
for the credit, each is responsible for the debt. 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. |
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Account "Users"
If 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 your's (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 people who might not qualify for credit on
their own, such as students or homemakers. While these
people may use the account, you. not they. are
contractually liable for paying the debt. |
If
You Divorce
If
you're considering divorce or separation, pay special
attention to the status of your credit accounts. If you
maintain joint accounts during this time, it's important to
make regular payments so your credit record won. t suffer.
As long as there's an outstanding balance on a joint
account, you and your spouse are responsible for it.
If
you divorce, you may 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.
By
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, 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.
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