Why You Need a Credit Card Account in Your Own Name

I recently heard from a reader (let’s call her Diane) who was going through a difficult time. Her husband had recently died and she suddenly realized she had very little credit in her own name.

Her late husband had been keeper of the finances and he’d done a great job with it. Diane was an authorized user on their credit cards, but her husband was the official account holder on all of them. Diane had assumed that her husband’s great credit—and his excellent credit score—also belonged to her because they were married.

“A common misunderstanding with married couples is that all their credit is joint credit since they are married. This is not the case. Credit reports are created and maintained on an individual basis. So, any credit you had before you were married or have obtained individually while married would only be seen on your credit report—not on that of your spouse. All joint credit would be reported on both spouses’ credit reports,” says Tom Quinn, consumer credit expert for Credit.com.

This really isn’t common knowledge, so I told Diane she shouldn’t be too hard on herself. She wanted to get a credit card in her own name so for her first step, I suggested that she obtain her free credit reports from the three major credit reporting bureaus as well as her credit scores. Looking at this information will tell her where she stands with her credit history and whether her score is high enough to qualify for an unsecured credit card.

When you have a significant other, it can be tough to recognize the best choices when it comes to credit card accounts. Going the “authorized user” route isn’t a bad choice if you’ve each established your own credit history. Another option for couples is to become joint account holders on a credit card. Here’s a quick rundown of the legal and credit-related differences between being an authorized user and being a joint account holder.

[Related article: Your Credit Report: A Resume, Not a Rap Sheet]

Authorized Users »

Image: Håkan Dahlström, via Flickr

Authorized Users

If you’re an authorized user, you’re not the owner of the account but you’re allowed to use the card. Legally, any unpaid balances are the responsibility of the owner of the account. In Diane’s case, she was allowed to use the card but her husband was legally responsible for paying the debt. And when the card was initially approved, it was based on her husband’s credit history and score. Alas, her husband also benefited the most from a credit history standpoint.

I asked Tom Quinn if being an authorized user was at all beneficial to Diane’s credit score. His response: “It depends on the model version and development approach of the model developer. With FICO, the newest score version (referenced as FICO 08) contains logic that still considers the authorized user tradeline if present on the credit bureau report, but with less weighting (or contribution) compared to previous score versions.” So it might help her a little, but it’s not the way to develop a solid credit score.

Joint Account Holders

If you’re a joint account holder with your significant other, approval for the account was based on both of your credit histories and the information you both gave on the credit card application. As a result, you’re both legally responsible for paying debts on the account. This type of situation can get sticky if the two of you split up. You’ll both have to come to an agreement over who pays what since you’re both liable.

With a joint account, your credit activity gets reported to the bureaus and if the account is handled responsibly, you can develop a good credit history. However, if your significant other is sloppy about paying the bills, it can also damage your credit history. So before you enter into a joint account situation, be sure your partner is trustworthy with a credit card.

Your Own Credit Card

Being an authorized user or a joint account holder has its place in a consumer’s overall credit card strategy. But do make sure that you also have a credit card where you’re the sole account holder. It’s essential to have a credit card that you’re responsible for and that shows up—in a positive way, of course—on your credit report.

Like Diane, you never know what life has in store. Having a credit card in your own name is a step toward helping you survive financially if you suddenly find yourself alone.

[Resource: Not sure where you stand credit wise? Get your Free Credit Report Card to find out.]