12/9/2013 10:15 PM ET|
How joint accounts ruin your credit
Sharing a joint account for your checking or credit card can hurt your credit if you run into one of these common problems.
It may seem like a good idea at the time, but sharing a joint bank or credit card account can hurt your credit if you run into one of several common problems. Here are stories from four Credit.com blog readers who learned this the hard way.
They don't pay and your credit suffers
"I am divorced and have been for seven years. I made the mistake of recently checking my credit report and found that the car awarded to my ex was repo'd. I have my divorce decree that clearly states this car is not my obligation. Will this document with a letter be strong enough to send to the creditor and the three agencies to get this off my credit report? What are my chances? Thank you for your column and advice." -- Roni0300
This reader's mistake was not that she checked her credit reports. Rather, her mistake was not checking them sooner.
If you have joint debts when you split up, it's very common for those debts to be allocated to individual spouses in the divorce decree. But that agreement does not change the original contract with the creditor. As far as the creditor is concerned, you're both responsible for the debt until it is paid in full.
If you are in a situation where your ex is supposed to be paying joint debts, make sure you monitor those accounts closely. You'll also want to get your free annual credit reports and monitor your credit score so that you'll find out as soon as possible if he or she falls behind on those bills. You can check your credit score for free each month using Credit.com's free Credit Report Card.
Your bank accounts may be drained for others' debt
"I'm primary holder of (a bank) account with my husband. I tried to get gas, but was declined. I called to see what was wrong because I had deposited my disability money that I had received for 2 1/2 months. They took it all.
"I went on TransUnion to find this had gone to court in 2007 and there was a judgment then. They didn't try to attach my husband's personal account or wages in all this time, but went after my account yesterday because his name is on it. I called my husband and he didn't know anything about a court action, plus he has his own account." -- Sonia
If you hold a joint bank account with someone who is having financial problems, you could get a very nasty surprise. Creditors or debt collectors who obtain a judgment against that person may be able to go after the money in the joint account. While some types of income is typically off limits to creditors -- Social Security income is an example -- even those protected funds may wind up seized if there are other funds mingled in the account.
If you have a joint account with someone who is falling behind on bills, considerate opening separate accounts so that your money isn't at risk. Otherwise, you may not have the money you need to pay your bills on time.
You can get dragged into a legal battle
"I live in Texas and just recently divorced, Nov 2012. I had no income for the past 17 years. I just discovered a judgement has been made against me for a loan at a credit union that I was the primary account holder of the checking account and had to be put on the loan in order for my husband to get it. I was never served anything for this judgement and had no idea it was on there until I had to refinance my home after the divorce. Do I have any recourse for this or do I just need to bite the bullet and work something out with them?" -- Leslie
As a joint account holder, you are legally responsible for the entire debt. If it is not repaid, you may be sued. And you may not get advance warning that there is a problem, so d0n't assume no news is good news.
Again, until the account you shared is paid off and closed, be sure to monitor the monthly payments, along with your credit reports and scores.
You can inherit others' credit problems
"My late husband was a terrible money manager. He was always late on payments and also opened credit cards that I was not even aware until his untimely death in 2011. My credit score is terrible because of this. He had a heart transplant on 2001 and shortly after that we had to file bankruptcy (jointly)."
Generally, you are not responsible for the debts of relatives when they die. Exceptions include if you are a cosigner or joint account holder, or when your spouse dies and you live in a community property state.
If the person with whom you shared a joint account dies and there was a balance, however, then you inherit the full debt. This can create enormous problems if the income you normally counted on to pay those bills, such as your spouse's paycheck or Social Security, stops. If you fall behind on the debt you inherited, your credit scores can drop.
Make sure you each have adequate life insurance, but think twice about credit protection plans, which are often expensive and may not cover all the bills the surviving spouse or joint account holder would have to pay.
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You can give your car the care it needs without draining your bank account if you follow this advice.