Does a Foreclosure on Joint Accounts Affect Credit?

If a mortgage is jointly owed, then both parties are responsible for the debt. If the home goes into foreclosure, then the credit of everyone who is listed on the mortgage will be affected. Simply being an adult and living in the house is not enough to damage your credit; you must actually be listed on the mortgage document and owe money on the home for the foreclosure to affect your credit score.

Foreclosure and Credit

According to CNN Money, a foreclosure is one of the worst things that can happen to your credit. Depending on your starting score, a short sale, deed in lieu of foreclosure or an actual foreclosure can cause your score to drop any where from about 80 to over 150 points. Other factors impact your score as well, so there is no way to determine an exact damage figure until the foreclosure occurs.

Joint Accounts

A joint account is any credit or financial account that belongs to two or more parties. Often a married couple has joint credit card, car loan or mortgage accounts. To get a joint account, both spouses need to be listed on the application and the mortgage or loan is approved based on the income and credit report for both parties. If only one spouse applies for and receives a mortgage, then the account is not a joint one, even if the partners are married. Only a joint account foreclosure will harm the credit of both parties.

Co-Signers

While not technically a joint account, a person who co-signs for someone else's loan will be affected by a foreclosure. Since co-signing is basically guaranteeing that you will pay the loan if the borrower defaults, you are held responsible for late or missed payments. Cosigning on a mortgage is not as common as cosigning on a car loan or credit card, but it does happen, and the credit score of the cosigner will be impacted by a foreclosure.

Considerations

If a married couple shares a home, but only one spouse is on the mortgage, then the other spouse's credit will not be harmed by a foreclosure. Even if both spouses are on the deed, the only document that affects the credit score is the mortgage; so an individual mortgage account will only affect the score of the party named on the account. Be aware that in some community property states, even if a spouse is not on the mortgage and their credit won't be affected, they could still be liable for the amount of money owed after foreclosure.