Credit scores are key elements in today's world since they are used to determine decisions on all major loans, as well as some employment positions and home or office rental spaces. Therefore, it is good to know what affects your credit score and how to keep it in tip-top shape. Some people consider applying for joint loans to gain a credit advantage. However, you should first realize that there are pros and cons attached to joint loans.

How Joint Loans Work

Joint loans are usually sought when one person wants to purchase a major item, such as a home or vehicle, or gain a loan for capital to start or expand a business, but they find that their credit score is either too low or not sufficient to obtain the loan on their own. Therefore, a partner with a better credit rating is sought out to help obtain the loan. This partner can be a good friend, parent, spouse, or business partner. For example, many married couples apply jointly in order to be eligible for a larger home loan. However, keep in mind that credit reports are never combined so, even if you are married, both you and your spouse will carry separate reports.

When you apply for a joint loan with a partner, the loaning institution will do a credit check on both you and your partner. Although applying for a loan with a partner who has better credit will get you larger loans and more advantageous deals, most loan institutions will not give you prime rates based on your partners good credit score alone. If you have poor credit, then that will play a major factor in the loan decision which will normally reflect your poor credit more than your partners good credit. The joint partner acts more as a guarantor on loan repayment should you default, but the actual loan terms will more often reflect your credit history and credit score.

In most cases, the primary borrower is the one with insufficient or bad credit (thus the need for a partner). Therefore, it is the responsibility of the primary borrower to make the designated payments on time.

Do loans affect your credit score, specifically joint loans?

Any activity, whether good or bad, that occurs on a joint loan is recorded on both credit reports and, therefore, will affect both credit scores which are calculated from credit report information. If payments are late or missed, that information will be added to both reports, thus lowering both credit scores. However, if payments are made on time and the loan is paid off in good standing, both credit reports will reflect that information and both credit scores will benefit. Should the primary partner be the one with good credit then their timely payments will positively affect your poorer credit and raise your credit score.

Since a large portion of joint loans are applied for with a spouse, the question needs to be addressed about how divorce may affect joint loans. Since joint loans are based on the credit information of both people, loan institutions will hold both responsible for payment of the loan regardless of default or divorce. Even though court judgments may declare one partner responsible for the debt, if that partner defaults on the loan, the lending institution will go after both partners for repayment and the bad credit loan information will be recorded on both credit reports.

Other Credit Score Influences

You should, now, better understand how joint loans can affect your credit as well as the credit of your partner. However, various other criteria can affect your credit, so what influences your credit score in other areas?

When anyone calculates your credit score, five key elements are utilized from your credit report to arrive at the figure. The criteria used are your payment history, level of debt, length of credit history, types of credit you have or have had, and new credit for which you have obtained or have recently applied.

It is advisable to check your credit report a minimum of two or three times a year and review it for errors, out-dated information, and bad line items which should be repaired as soon as possible.