Why joint credit cards are a bad idea

Joint credit cards are like pay phones, CD players and incandescent light bulbs — they are slowly becoming things of the past.

Still, now and then, you may come across a credit card offer that allows you to include a joint account holder on your application — but is that a good idea?

It is usually not wise to co-sign with another person when you open a credit card account, especially since the option to add them as an authorized user is available. Keep reading for a breakdown of why joint credit cards are probably a bad idea.

Related: The credit cards with the greatest value for authorized users

The difference between joint account holders and authorized users

There's nothing wrong with sharing a credit card with someone you love and trust. In fact, sharing your account can boost your rewards-earning potential and encourage financial transparency between you and your spouse. Sharing a credit card can also be a smart way to help a child or loved one establish credit.

If you want to share a credit card, there are two ways to do it. You can open a joint account, or you can add an authorized user to your existing credit card.

Here's a look at some of the similarities and differences between joint credit cards and authorized user status, along with some of the risks and rewards of each type.

Similarities

• Both joint account holders and authorized users can help you accrue rewards faster and hit spending thresholds sooner.
• With joint accounts and authorized user credit cards, rewards earned are typically stored in one place, making them easier to manage.
• Primary account holders are responsible for charges made by both joint account holders and authorized users. For this reason, it's important to only share a credit card with someone you fully trust.
• Joint cards and authorized user status could help your loved one build credit. A well-managed account might even improve the other user's credit scores (provided the accounts show up on his or her credit reports).

Differences

• Some card issuers don't report account history to the credit bureaus for authorized users. This can be problematic if you're sharing a card because you want to help someone build credit.
• The liability for charges is different on joint credit cards. Both cardholders are fully responsible for any charges made on the account.
• Some card issuers allow you to add spending limits for authorized users. Joint cardholders always have access to the full credit line. This is an important distinction if you want to limit your risk on a shared credit card.
• If an authorized user wants to be removed from an account, he or she can usually call the card issuer and ask to be taken off. The account is generally removed from the authorized user's credit reports at that time (if it was added in the first place). A joint account holder can't be removed from a card but can only close the account.

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Unfortunately, closing a joint card won't remove it from your credit report. So, if you're hoping to remove negative credit history by closing a joint account, you'll be out of luck until the account reaches its credit reporting expiration date (usually seven years from the date of the late payment or other negative credit histories you're trying to escape).

Hands down, the safest way to share a credit card with someone else is to add an authorized user.

It's also worth noting that many card issuers have stopped offering joint credit cards, making these types of accounts more difficult to find, even if you want to open one.

Related: The benefits of adding a relative as an authorized user

When to close a joint credit card

If you opened a joint credit card without fully understanding the risks, try to relax. A well-managed joint credit card might never cause you any problems (especially if you share the account with someone whose financial views you share). In fact, a well-managed joint credit card account could help both you and your co-cardholder build better credit.

It's also not necessarily a good idea to rush out and close a joint card without cause. But because of the risks associated with joint cards, it does make sense to work toward paying the account down to zero ASAP (and to keep paying the full balance monthly moving forward).

That said, there are a few reasons why closing a joint card may be in your best interest:

• You're going through a separation or divorce from your joint account holder.
• You co-signed for a loved one who isn't managing the account responsibly (e.g., late payments or high credit utilization).
• The card features a high annual fee (which you've tried and failed to get waived), and the benefits of the account don't outweigh the fee.

However, even if you have a valid reason for closing a joint credit card, doing so could harm your credit scores.

Related: How to cancel a credit card

How to close a joint credit card the right way

The reason that closing a credit card account (joint or otherwise) can potentially damage your credit scores is because the account closure might increase your credit utilization rate.

"Credit utilization" describes how much of your available credit limits are being used on credit card accounts. When you close a card, you no longer have access to that available limit. As a result, if your credit reports show a balance on any credit card account, your utilization rate (aka your balance-to-limit ratio) will increase.

The higher your credit utilization ratio climbs, the worse it is for your credit scores. Your best bet is to pay off all your credit card balances every month (preferably before the statement closing date so a $0 balance could be reported to the credit bureaus for the month). This payment strategy is not only good for your credit scores, but it's good for your wallet as well.

Before you close a credit card account, you definitely should try to pay all your other credit cards to zero, if you can. This may help you avoid any dings to your credit scores from a higher utilization ratio.

Of course, sometimes closing a joint credit card can't wait. When you're going through a divorce, for example, you probably won't want to be responsible for your ex's new charges. Closing the account can protect you from these potential problems.

Some people claim that closing a joint credit card also causes you to lose credit for the age of the account. In other words, some believe your length of credit history could be negatively affected by closing a credit card and — since that's worth 15% of your FICO score — it could hurt your credit scores.

Here's the good news: Closing a credit card won't shorten your length of credit history — at least, not until the account is removed from your reports in around a decade. The account will remain on your credit reports, and FICO scoring models (used by 90% of lenders) will continue to count the card in the average age of your accounts.

Related: What is a good credit score?

Bottom line

You should think long and hard before signing onto a joint account credit card with a family member, friend or loved one. At the same time, you should also think long and hard about closing a joint credit card account (or any credit card account), even if you have a good reason for ending the financial relationship.

Related: Should my partner get their own card or be added as an authorized user?