Renting with friends? What you need to know about joint accounts
Opening a shared account when you’re renting can take away the stress of splitting the monthly outgoings.
‘Providing all parties have good credit history, a joint account for paying bills is the easiest way to neatly manage finances in a rented property,’ says Mustard estate agents, which covers Milton Keynes, Towcester and beyond. But there are some things you should know before taking the plunge – including what to do if it does go wrong…
The issue of trust obviously comes up, particularly if you’re moving in with people you don’t know that well. The government’s Single Financial Guidance Body (SFGB) says that if you have doubts, you shouldn’t open a joint account.
But if you’re confident to go ahead, it’s a good idea to lay some ground rules. For example, a good starting point is how much you’re going to put in every month. Mustard, for example, advises calculating the total cost of rent and bills on a monthly basis and adding on a buffer for emergencies. Other questions could be:
Are you all going to be in charge of monitoring the account? Can one person make transactions without permission from the others? Will you have an overdraft? If you make any interest, what will you do with it?
You get the idea. Brainstorm ahead, perhaps over a takeaway!
Credit where it’s due
The SFGB largely advises against opening a joint account if one person has a poor credit history. Why? Because it can impact your credit rating in the future.
Simply having the same address won’t make you what’s called ‘financially associated’. But opening a joint bank account will. ‘Companies view information on your credit report when you apply for credit like loans and mortgages,’ writes credit agency Experian.
Consider the scenario where someone you have opened an account with has been made bankrupt. In a lender’s eyes, you might be less able to pay back your own debts because you might have to help them.
Don’t just bank on it
You’ve decided to go for it. You’ve laid the ground rules. You’ve chosen your provider and started the application process. The SFGB advises asking them a few questions:
– Who’s allowed to take out money without permission from fellow account holders? For example, if an account holder withdraws money from the account, options are limited for retrieving it
– If you fall out, or want to go your separate ways, how will it be handled?
– How will overdrafts be managed?
Account holders must sign a ‘mandate’ or ‘authority’ when they open an account, setting out what everyone is allowed to do.
More than a debt of gratitude
It’s important to remember that if your joint account is overdrawn, all of the account holders become liable for the debt.
If things do go pear-shaped between you, tell your bank or building society. They might freeze the account, which means no money will be able to be withdrawn and direct debits could be cancelled. Hopefully, you can work it all out amicably and the bank will unfreeze your account. If that’s not possible, it sounds scary, but legal action could be the only option.
According to the SFGB, accounts can only be closed with the agreement of the account holders. You’ll need to work out between you how to divide any remaining money, and pay off any overdraft.
Once your account is shut, consumer service Which? advises people to get in touch with credit reference agencies Callcredit, Experian and Equifax to issue a ‘notice of disassociation’. ‘This means their financial circumstances won’t affect your credit applications in future.’
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