If you're thinking about sharing a credit card account with someone, pause. All shared card accounts – co-signed, joint and guarantors -- aren't the same. Plus, depending on the issuing bank, your options for sharing accounts may be limited.
Before going over the differences, similarities and credit liabilities associated with each shared account type, review this chart to see what your options may be, based on the card issuer:
There are a number of reasons why people share credit card accounts. Some share a credit card account with their college-bound children to give the kids access to emergency cash. Others do it to help out family members and friends who would not qualify for a credit card on their own. Some married couples prefer to share a credit card account to handle household expenses.
Most consumer advocates advise against sharing credit card accounts. Not only can you be stuck having to pay for a debt you did not incur, but a shared debt could cause a lender to think your debt load is too high, hurting your credit score. "You may not be eligible for a loan because some other person's credit card balance or loans are on your credit report and they have to be included in your debt-to-income ratio," says David Flores, a financial counselor at GreenPath Debt Solutions.
If you're contemplating the risks of a shared account, make sure understand these differences among your options.
The basics of shared accounts
If you're looking to share an account, there are four basic options.
1. Two people can become joint applicants. In this type of agreement, each applicant has charging privileges and each is equally liable for all of the debt, says Nessa Feddis, a spokeswoman with the American Bankers Association. If you have this type of agreement, you could be held accountable for charges even if the other person made them. "You often see this in divorce where you have a joint account and one person ran up the bill, but they're both liable," Feddis says.
2. You can co-sign on an account for another person. In this type of agreement, the co-signer agrees to pay the balance on the account if the other person defaults. Typically, as a co-signer, you don't have charging privileges on the account, Feddis says. Your job is simply to take over the bill if the other person does not pay.
3. You can become a guarantor for another person. This type of agreement is similar to a co-signing agreement in that you agree to take over the debt if the other person does not pay. As with co-signing agreements, the guarantor does not get charging privileges on the account. But there is also a slight difference when it comes to liability, Feddis says. A bank must take more steps to get a guarantor to pay the debt than a co-signer. While the lender can come after the co-signer for the debt practically as soon as the bill is overdue, "The guarantor doesn't become liable until the bank has exhausted all other means of collection from the original borrowers," Feddis says.