Protect yourself: 3 steps to follow before opening a joint account with a partner
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Being in a relationship often means merging finances, but before you open joint accounts with your partner, you need to take some steps to make sure you don’t end up on the line for their poor financial behavior. In this “Financially Savvy Female” feature, we talk to Shazia Virji, Managing Director of Credit Services at Sesame Creditwhat to do and discuss before opening bank accounts or lines of credit with your loved one.
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Gain an understanding of your partner’s attitude towards money and finances
“Some people are more comfortable going into debt or financing purchases, while others have a philosophy of living a debt-free life,” Virji said. “Identify whether your partner is a saver or a spender to determine how you will make joint decisions about big purchases like a car or a house, or even decisions like opening a credit card. spouse.”
To get started, discuss your short-term and long-term financial goals and the steps you both want to take to achieve those goals.
“What’s important is that you’re both on the same page about the money coming in, the shared expenses, and what’s earmarked for individual expenses,” Virji said. “A joint budget is a great way to start planning without having to assume your partner’s spending habits. It can also be helpful to talk about past financial mistakes and how you learned from them.
You may hesitate to open a joint account with your partner if you find that he is unwilling to talk openly about his finances.
“A red flag would be someone who is unwilling to share information about their financial past, present or future,” Virji said. “It can be a sign that they have something to hide, which could impact your shared financial future. Transparency and communication are key when it comes to creating a common language around your finances, because your individual financial decisions will eventually become joint financial decisions.
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Share your current credit situation
“Be open to sharing your current credit situation with your partner so you can both plan for the future and know what steps both parties need to take to achieve your shared goals,” Virji said. “If you are looking to buy a house jointly with your partner, mortgage lenders will look at the credit ratings and backgrounds of both applicants. Make sure there are no surprises that could delay your schedule or keep you from moving forward with your dream home.
If you or your partner have bad credit, take steps to repair your rating before applying for a mortgage or other loans.
“There are a few factors that impact your credit score — payment history and credit usage are a big part of the equation,” Virji said. “You need to know if your partner is able to pay their bills and debts on time, and how much of their existing credit they use regularly. If they have a habit of maxing out their credit cards, this might be something lenders might not be comfortable with and could impact your ability to get approved for a joint account.
You also need to find out if they have any major financial skeletons in their closet, such as bankruptcy.
“Some negative items, such as bankruptcies, can stay on someone’s credit report for up to seven years,” Virji said. “It can really impact your timeline if there are big joint financial decisions you’d like to make with your partner. It’s best to know your partner’s financial skeletons so you can plan together how to make decisions. and stick to a reasonable schedule.
Share your current debt situation
“Know how much debt your partner has and what their repayment schedule looks like,” Virji said. “If they pay off their debts with high interest rates, it could limit their ability to save for meaningful common goals.”
However, if your partner is in debt, that in itself is not a red flag, Virji said.
“It’s okay if your partner is in debt – many Americans are! But it can start to impact your future if the amount of debt continues to rise and the rate of high interest on debt continues to escalate,” she said. “That means your partner is probably only paying interest during their monthly payments and they may not be able to significantly reduce principal repayment. This can limit the types of financial decisions you are able to make jointly, such as taking out a mortgage, which would further add to the debt situation. You can ask your partner for more details about their payment schedule and when they expect to fully pay off their balance so they can start putting those dollars toward savings.
GOBankingRates wants to empower women to take control of their finances. According to the latest statistics, women hold $72 billion in private wealth – but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to invest and are more likely to have debt, and women are still paid less than men overall. Our “Financially Savvy Female” column will explore the reasons for these inequalities and provide solutions to change them. We believe financial equality starts with financial literacy, which is why we provide tools and guidance for women, by women, to take control of their money and help them live richer lives.
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