Entering into a live-in relationship, whether married or not, is exciting and nerve-wracking enough without additional worries about financial issues. For some couples joint banking has value, while for others it’s best avoided. Before opening a joint account, evaluate your reasons for doing so objectively against criteria such as the creditworthiness of both parties, your employment situation and long-term savings goals.
A joint checking account can affect your credit score if one party continues to make overdrafts and the bank decides to report the bad behavior to the credit bureaus.
How Credit Scores Work
The credit bureaus calculate credit scores based on a variety of data. They use information such as your payment history, how much money you currently owe, the length of time covered by the credit history, how much new credit you have and the types of credit you hold. A negative report in any of these areas can lower your score, and reports are based on information passed on to the bureaus by companies with which you have accounts.
Checking Accounts and Credit Scores
Typically, the status of your checking account is not usually reported to credit agencies. Therefore, while the account remains in good standing, it will not affect your credit score. Potential problems occur, however, if your checking account becomes overdrawn without the bank’s authorization because this attracts overdraft fees and additional interest.
The bank is unlikely to report this the first time it happens, but if you regularly go into overdraft it may do so. In addition, unless you pay the extra fees and interest promptly, these become outstanding debts, which can certainly affect your credit score.
Separation or Divorce Risks
Separating or getting divorced might seem unlikely at this point, but it happens. In the event of splitting up, couples with joint checking accounts run several risks, including being denied access to their money by the former partner. This may result in being unable to pay bills, which will affect your credit score. In addition, if either party mismanages the checking account, overdraft interest and fees will affect both.
Savings Account Options
The majority of couples save jointly for dream purchases, such as a first home, a new car or a vacation. Joint savings accounts are better for this purpose than a checking account, mainly because it isn’t possible to overdraw or incur major fees that need repayment.
If you open this type of joint account, make sure that all withdrawals require both signatures or online authorization. This will protect you from unexpected losses, which can occur if one of you loses your bank card or the account is hacked. Savings accounts typically earn higher interest than checking accounts, which makes them a better savings vehicle.