Joint credit is the combined assets, incomes, and credit histories of two or more people. Thus, joint credit can be issued to multiple individuals, and all parties share the responsibility for repaying the debt. When banks or financial institutions grant joint credit, they evaluate everyone’s combined income, assets, and credit histories. This is done to assess the applicants’ overall creditworthiness.
There are three main types of joint credit:
Co-borrowing is when another borrower is also attached to the loan. Both parties share the responsibility for repayment and are both 100 percent responsible for the loan’s monthly payments.
Additionally, both parties also have an equal ownership interest in the property in a mortgage loan. So, if the borrowers want to go their separate ways, the loan payments, as well as ownership rights, would need to be settled with the bank.
This type of joint credit is most common for a married couple co-borrowing on a mortgage loan.
(READ: Who is a Primary Borrower?)
Co-signing is when another person becomes an additional repayment source and takes full responsibility for repayment if the primary borrower cannot pay. Unfortunately, a co-signer does not have any ownership interest in the property but is simply a backup payer that guarantees the loan.
Co-signing a loan is not advantageous for the co-signer. He or she is 100 percent responsible for the loan payments but does not have any access to the loan or credit account.
This scenario is most common when a parent co-signs a student loan for his or her child’s college tuition.
Credit card companies may approve a line of credit or joint credit available to multiple users where each individual is equally responsible for repayment. However, an authorized user has access to the available credit but none of the responsibility to repay the debt.
The person accountable to repay the debt is the person who applied for the line of credit. That borrower’s income and creditworthiness were evaluated before approving the line of credit. The authorized user is added to the account and receives access to credit.
Having an authorized user is beneficial if the authorized user is seeking to build their own credit score, and the primary account holder makes regular on-time payments. This situation is most common for a parent to help their child build credit.