Tag Archives: joint credit card

Want To Stay With Your Ex Another 20 Years After Breaking Up?

One well intentioned, but really stupid, financial decision can have you dating your ex for another 20 years, or destroy your credit tomorrow.

While they were dating, Larry and his girlfriend signed up for a joint credit card. It seemed like a good idea to have a credit card with both their names on it. Besides, his girlfriend didn’t have good credit, and would never have gotten the card on her own.

Fast forward to today, and the end of the relationship, but the beginning of Larry’s financial nightmare. The credit card at the time of their breakup had a balance of $10,000. They agreed to both be responsible for half. Larry immediately paid his $5,000, and had the statements now mailed to his ex girlfriend. He then called the bank and explained the situation, asking that his name come off the card. He was surprised when they told him no way. Over 90% of the time, that request will be denied. It sure wasn’t going to happen here since his ex had bad credit and they weren’t going to let the person with money and a decent credit score off the hook. Their personal arrangement of paying half each was only that – a personal arrangement. By law, both parties are fully liable for the total balance! His name comes off when the balance is paid in full and the card is closed.

As she can only pay the minimum payments, Larry is literally trapped in the relationship with his ex girlfriend for another 20 years or longer at her minimum monthly payments. That’s how long he has to sweat out whether she’ll pay something every month. If not, he won’t know for a few months and his credit, along with hers, will be destroyed. It seemed like a good idea at the time…

Larry has nothing in writing to enforce her $5,000 half, and she can’t pay it off and end this nightmare. The only hope Larry has to end this sooner is to:

-See her and get her to sign that she owes it. Lie to her and say that the bank needs a letter saying it’s not his debt (which it is) because he’s applying for a loan.

-Offer her a settlement. If she pays $4,000 in the next month (or whatever amount can make it happen), he’ll pay off the rest.

-Offer to kick in $100 a month for any month were she pays $400 to speed it up

-Make sure he calls the 800 number on the card every month to confirm she’s made the minimum payment to protect his credit rating.

What’s the lesson from Larry and countless others in that same situation? Never ever do any joint loans, credit cards, or mortgages unless and until you are married. You can help someone by letting them become an authorized user on your card, you can lend them some money with a simple online loan agreement, but don’t do any joint borrowing. Nobody considers the downside at the time – but nobody can get out from under it when something doesn’t work out.

Getting Started Establishing Credit

If you’re 18 to 21 or so and want to establish credit, there are a couple of things you need to think through first. Once you do establish some credit, how sure are you that you can pay it off each month without fail? Just hope and optimism aren’t enough, and nothing kills your credit rating more than going past due even just once.

Yes, building up credit can cost you some fees and interest. If you’re smart about it, paying some of these is probably a worthwhile investment in building a solid credit foundation. There are five common ways to get started. All of them are based on the assumption that you’re employed, have sufficient income, and have no previous credit problems:

Joint Visa or MasterCard. If you can get your parents to apply for a joint card with you, you’ll be able to use their good credit rating to get one with a decent limit. If your parents read this, the advice would be to never actually give you the card – period. It’s meant to establish credit and not to give you permission to spend. The card reports to the credit bureau and starts a great track record for you, but it should stay in your parent’s possession and only get used twice a year for $20 or so, just to keep it active.

Secured Visa or MasterCard. Secured simply means a cash deposit in the amount of your credit limit is placed on deposit as collateral. Other than this deposit, the card looks and charges exactly the same as unsecured cards, and also comes with the usual late and over limit fees like all others. The deposit stays in place until the credit card is closed or changed to a regular account. It’s an excellent start and doesn’t need a cosigner. You want to confirm that the fine print states that they’ll switch you to a regular card after 18-24 months of on-time payments.

Department store cards. You’ll generally be approved without previous credit for a very modest limit of around $250 or so. It’s not much, but it’s an excellent start. Who knows? It may get you 10% off the day you apply, just make sure it’s one of the last times you actually use the card! Huge rates and a tiny limit means you’ll want the credit rating and not use the card.

Co-signed loan. This is the most common first loan for younger people. The co-signer, usually a parent, is equally responsible for the repayment as you are. It’s the reason lenders almost always want a family member. If your parents are looking for advice, it would be to never co-sign anything for anyone. That isn’t a double standard – it just depends on who is asking for feedback. Often a smaller loan, or an increased down payment, can eliminate your need for a co-signer.

Car loan. Assuming it’s a reasonably priced used vehicle, a 30 to 50% down payment through a reputable dealer may get you financing without a co-signer. A family member is better protected by giving you a portion of the down payment instead of signing on the entire loan with you. But car loans are still the most common way most young adults establish credit. You just need to assure it requires the world’s smallest payment and that you know the price of your insurance up front.

Just be really clear that you’re wanting to establish credit and NOT establish debt! There’s a big difference and not realizing that will be very very expensive. Be careful out there.

Establishing A Credit Rating for Your Son or Daughter

As we’re getting near graduation season, I thought it would be appropriate to talk about some student, grad, and young adult stuff in the world of credit.

Let’s face it, our schools don’t teach kids many of the tools that are amongst the most important for financial survival. And, to be honest, many parents don’t really do a good job, either. Not from lack of wanting to, but sometimes just not having the tools and insights themselves. Plus, if the truth were known, lots of parents really hope their kids don’t end up in the same financial mess they’re in when almost two-thirds of households live payday to payday.

One of the most common questions I get is how to start to establish credit for an 18 or 19-year old. But I’m always torn on this issue. In an ideal world, I’d like no teenager to ever have credit. Why? Because it means they won’t borrow, and not borrowing is THE best recipe to financial success.

However, reality is that most of us do want to finance a home at some point in the future, and sadly, many want to finance a vehicle at some point. A credit rating is also something that many employers look to, and a credit report is pulled by most larger landlords or management firms.

There is a large section in the It’s Your Money book on establishing credit. Make this one of THE best $20 grad presents you can give your son, daughter, or grandchild. It’s something they can refer to for years to come – before it’s too late.

Here is one easy and quick way to establishing credit for any young person: Apply for a credit card under your name, with your son or daughter as the second applicant. The card is approved based on your credit rating, while your son or daughter will have their name shown on it. When the card arrives, lock it away. Do NOT give it to your son or daughter to use. Don’t even give them the card number, or they’ll have no problem using it for on-line charges.

Because their name is on the card, it’ll report to the credit bureau with the limit, the length of time the account has been open, and always a zero balance. They key is to get credit established so a credit file gets going. A credit rating is partly based on how long someone has had a credit file, and this will get them started.

Why not give them the card? Because you’re fully liable for the charges as a joint applicant. This isn’t meant to be an experiment in temptation, but an easy way to establish a track record and credit rating. Activate the card, put it far away, and just use it once a year for a $2 or $5 charge, in order to keep the account active.

Two or three years from now your son or daughter has a solid credit rating and what they do with it at that point is up to them. Hopefully, by that time, they’ve learned some financial, credit, and borrowing tools. If so, you’ve done your best. If not, whatever they borrow at that point isn’t your problem, and won’t impact your credit rating.

Make this a priority for a grad present. After all, “graduation” to understanding the insights of finances is something we’ll all use for a lifetime. Maybe it’s for someone graduating from high school or university. Or maybe it’s the rest of us graduating from financial insanity, graduating from not wanting to be broke anymore, or graduating from the years of living on way more than we earn.