Getting joint credit with someone is a big step, so before you take the plunge you need to know how it could affect your finances
Getting joint credit can be a straightforward way of combining finances with another person. A joint bank account can make it simpler to split bills, and applying with another person can make it easier and more affordable to get a mortgage or loan. And after all, sharing is caring right?
Here are the 5 key things you need to know to make sure you protect your credit report, your purse (and your heart).
1. When you borrow with someone else they will become a ‘financial associate’
The most important thing to understand before you borrow with someone else is the impact this can have on your credit report. When you apply for credit, such as a loan or mortgage, with another person you become financially associated. This creates a financial link between you and that person.
The names of any financial associates you've had in the last six years, gets marked on your credit report. If you’re logged into your ClearScore account, you can check your financial associations in the ‘Personal’ tab in your report. Simply scroll down to the section that lists ‘Financial Connections’. (You can login here).
When lenders look at your credit report they will be able to see the names of anyone you are linked with, which can have a knock-on effect on you...
2. Being financially associated with someone won’t affect your credit score, but it could affect your ability to get credit
Your credit score is not affected by anyone you are linked to financially. Even if you have a financial association on your report, your score is calculated using only information about how you individually use credit. So if you're linked to someone with a low score, it won't bring yours down.
But financial associations can affect how you are seen by lenders. When you apply for credit a lender may choose to look into the credit history of anyone named on your report, which could have an affect on your ability to borrow.
If you’re financially linked to someone with a low credit score or a problematic credit history, it may have an impact on how easy it is for you to get credit. If you’re applying for joint credit with someone with a low credit score, you may find it trickier to be accepted, or you may be offered a higher APR.
If you want to apply for credit in your own name in the future, lenders will still be able to see any financial connections you have. Some lenders might take this information into account when making a decision about whether or not to lend to you. Even if your application has nothing to do with your financial connections. They may be concerned that the other person’s borrowing behaviour could impact your personal ability to meet repayments.
3. Getting married or moving in with someone won’t automatically forge a life-long financial association.
Your credit report doesn’t get updated the minute you say ‘I do’ or get the keys to your flatshare. Even if you send joint Christmas cards or share the food in the fridge, you’ll only become financially associated with someone if you apply for, or take out, some form of joint credit.
What products can form a financial association?
There are a number of financial products which, if you take them out with someone else, can form a financial association:
- A joint mortgage
- A joint bank account with an overdraft
- Any type of loan you take out with someone else
Applying for credit with someone else can also mean you’ll become financially linked with that person. Acting as a guarantor for another person can also create a financial connection.
What won’t form a financial association?
Being married to or living with someone.
A joint credit card. Even if there are multiple users, there is always just one main cardholder, who is the one responsible for paying off the debt (even if they aren’t the one doing all the shopping).
Having multiple names on a utility bill, unless the provider is sure you and whoever you live with are a couple (i.e. the bill states ‘Mr and Mrs Smith’).
4. A financial association isn’t for life
Information on your credit report can remain there for up to six years. Any financial associations you’ve had in the past six years will remain on your credit report, even after a joint product has been closed down.
However, if you’re no longer sharing any financial accounts with someone, you can ask for them to be removed from your credit report.
If you want to remove a financial association you can contact the credit reference agency and request for the connection to be removed. You can contact Equifax easily through ClearScore by using our disputes page.
5. Make sure you’re taking steps to protect your credit score before you jump in and apply
1. Make sure that you and whoever you’re borrowing with has checked their credit reports before applying for joint credit.
It's always good to keep a regular eye on your credit report and score. But if you know you want to borrow with someone else it's even more important to know where you stand. If you try to apply for credit, but one person isn't aware they have a low score you may find yourselves being rejected. Be sure to fix any errors beforehand too. This will help ensure you have the best chance of being accepted.
Login to your ClearScore account to check your report and score before you apply, to minimise any surprises.
2. Have open discussions with whoever you have joint credit with.
When you sign a credit agreement for something whether it’s a mortgage or an overdraft, you’re agreeing to something known as ‘joint and several liability’. This means that you’re each accepting individual responsibility for the entire debt, not just your half. The debt will always have to be paid in full, even if one person can’t, or won’t, pay their bit.
It’s really important to have open discussions with anyone you’re borrowing money with. For example, you could think about agreeing to limits on how much you spend, or how much you’ll each pay back.
The Money Advice Service has lots more advice on how to do this and who you can talk to if things get out of hand.
*Research conducted with 2,109 UK adults (aged 18+) by Censuswide between 08.02.17 and 09.02.17