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How to jointly manage money without damaging your credit score

Written by Ben Salisbury

If you have ever shared an address with someone, you could be financially associated – which means, in the eyes of the credit reference agencies, that your finances are connected. Credit agencies play a big role in whether you can get approved for credit in the future, so it’s very important to be aware of your financial associations.

Joint bank accounts, joint loans, shared utility bills, and mortgages can all create financial associations between you and other people – and once you’re linked, their future financial behaviour can affect your personal situation and whether you can obtain credit.

Here we look at how financial links are created, the potential problems this can bring, how to repair damage done to your credit rating and how to manage your finances together in a harmonious way.

What creates a financial association?

You become financially associated when you apply for financial products like a bank account or mortgage with a partner or flat mate, or if you become a guarantor for someone. Shared utility bills can also create a financial link, though not always. These links stay on your credit report until you let credit reference agencies know they no longer apply.

However, just because you live with someone doesn’t automatically create a financial association. Even being married to someone doesn’t create a financial association if you don’t have any joint credit. You can also enter a civil partnership, move in together, and even take someone’s surname without creating a financial link.

You can see who you’re financially associated with by checking your credit report. Use a free service and if any names are incorrect or outdated, apply for a financial disassociation to break the link and let potential lenders know of the error. For more information, see this guide from Experian.

Sharing the same address doesn’t automatically create a financial association between the people who live there. In the case of renters, a joint tenancy agreement with the landlord does not create a financial link on your credit report.

If you apply for a joint bank account, though, or multiple names are listed on household bills, then that could create a financial association.

If you bought your home with a joint mortgage, that’s quite different, and it does create a financial link between you and anyone else named on the mortgage. With a joint mortgage all parties are liable for mortgage repayments and failure to make them affects your credit rating. The lender can issue a notice of default and eventually foreclosure which can lead to eviction.

Joint bank accounts

Living together can mean setting up joint bank accounts to pay household bills. This is convenient but risky: if one person leaves, all other named account holders are liable for their share of any joint debts they’ve left.

Cohabiting couples can open a joint account for shared household bills while retaining their own individual accounts. A common technique is to set up a standing order from your personal account to the joint account. Everyone on the joint account can then see the money flowing in and out.

Adding an additional cardholder to credit card accounts

You can’t take out a joint credit card. Instead, you must get a credit card under one name, and then the primary cardholder can add secondary users to the account.

The important distinction is that liability for spending on the card is with the primary account holder. This means that financial associations won’t be created and your credit scores won’t be linked – but the principal cardholder is liable for any and all debts charged to the card.

Shared household bills

When one or more names are on a credit agreement or household bill or tenancy agreement, you are jointly liable for all debts incurred. In practice, this means one person can be sued for the debts of several people.

If your partner or ex-partner is made bankrupt, they’re no longer liable for joint debts, but you’ll be liable for all of them.

The rules around joint names on household utility bills are more complex. Often gas or electricity bills are in one name, meaning the named person is responsible for payment – but if it’s obvious that the bill is paid on behalf of others living at the property, they can be held responsible too.

Parents thinking of becoming guarantors for children when they go to university and rent a property with other students need to remember they could become liable for the rental costs of all parties, not just their children.

Removing financial associations

If a relationship ends, untangling finances is a difficult but necessary process. You must agree and settle any joint accounts and other financial liabilities, and you need to contact credit card providers to remove your ex-partner as a secondary user on a credit card in your name.

Once you’ve dealt with joint finances, check your credit report a few months later with each credit reference agency (Experian, Equifax and Callcredit) to ensure there are no remaining financial links between you and your ex-partner. You may need to provide proof that these financial links have ended.

If you find any links remaining, contact each agency and ask them to be removed, otherwise any future credit applications could be affected. The formal process for this is called disassociation, or financial disassociation. This can usually be done online, and then the credit reference agency will contact you to confirm the link has been broken or to get any further information they need.

Additionally, you can ask for a statement of correction to be entered on your credit file explaining any errors or discrepancies.

How do shared finances affect your credit rating?

When you apply for joint credit your credit reports become linked. New lenders see this link and may base lending decisions partly on the other person’s credit report, so your credit worthiness could be affected by their financial actions.

If you split up or stop sharing costs with someone you previously lived with, be careful that they don’t make fraudulent applications in your own name.

Check your credit report before making important credit applications like applying for a mortgage, loan, bank account or credit card, and before big life events like getting married. Ensure the details are accurate and there are no errors that could affect your ability to access new financial products.

Pros and cons of linking finances

Combining finances is a practical way of managing money and expenses for people who live together. For couples, joint accounts mean transparency about who is spending what and can prevent arguments about money.

However, if one of you has a poor credit history then opening a joint account or creating a financial association means the other person will be co-scored, potentially lowering their credit score.

You could become liable for the other person’s debt, and if one person takes money out of a joint account there aren’t many options for getting it back.

How to manage finances in a relationship

To minimise the chances of money ruining your relationship, agree financial rules and understand how financial behaviour impacts you both. It’s important to set some ground rules: research by law firm Slater & Gordon found money worries are the biggest cause of divorce.

If you both have a similar outlook on managing money, you’ll increase your chances of a successful partnership.

Check your credit scores together: analyse them so you can both see what impact your financial actions can have. This reinforces your ability to understand your finances and work together for your mutual benefit.

If one of you has a better credit rating than the other, take action to improve your partner’s rating so that joint credit applications have a better chance of success.

One way to do this is to finance joint purchases through your partner’s name, so that they get the credit score uplift when repayments are made on time. Just like improving your own credit score, though, the best route is to sort out your partner’s personal financial situation: reduce debt, use a credit card correctly, correct any errors on their credit report, and always pay bills on time.

Further help and free advice

There are lots of resources to help couples sort out their joint finances and to deal with the impact of any previous financial associations. Money Advice Service has lots of guidance on joining your finances together – and the debt charity StepChange has advice on dealing with joint debts.

A financial guide to sharing a home with someone else