When good credit marries bad, it takes work
Take steps to protect your credit, help your spouse improve theirs
By Karen Haywood Queen | Published: February 12, 2016
You pay your bills as soon as they arrive and your credit score reflects that. On the other hand, your betrothed has a hang-loose attitude toward finances -- or has just had a run of bad luck. No surprise -- he has a dinged-up credit history.
There's nothing wrong with marrying your financial opposite, but you don't want your intended's happy-go-lucky approach or credit struggles to wreck your financial future. Experts advise you take steps to protect your credit and help your partner improve theirs.
"You don't want any surprises," says Diane Moogalian, vice president of operations at credit reporting agency Equifax. "The beginning of the process should be open dialogue about past history from a financial perspective since the inception of credit."
If you're already married or about to be and have no clue about your partner's credit history, now's the time for The Talk. "It's important for couples to review credit reports, especially early in marriage," says Manisha Thakor, a certified financial planner and director of wealth strategies for women at financial advisory firm Buckingham and the BAM Alliance.
It's important for couples to review credit reports, especially early in marriage.
CFP, Buckingham and the BAM Alliance
She suggests sitting down together and making sure there's a clear understanding of all open accounts. You can get a free copy of your credit report at annualcreditreport.com. You're allowed one copy from each of the big three credit agencies (Equifax, Experian and TransUnion) every year.
If you learn your partner's history is less than stellar, don't rush to judgment, Thakor cautions. "Credit scores and reports can be widely different," she says. "Not necessarily because one person is a horrible person. One person may have been an entrepreneur and the business went belly-up. Now there's a bankruptcy on the account."
Or medical debts could have caused one partner's credit score to plummet or even resulted in bankruptcy. No matter the cause, you want to take action to ensure that the high credit score remains high and that the lower score begins to tick upward.
Good news for the partner with the higher credit score: Tying the knot doesn't automatically merge your credit history or scores. For example, you each have individual FICO scores -- not a joint score.
"The simple act of getting married does not improve or hurt your credit score," Thakor says. "You have this pile of information that follows you around throughout your life in your credit file -- how responsible you've been in paying your bills on time, what kind of debt you've had, your history in paying it off. That data gets put in a formula and spits out a credit report. That data does not merge when you get married. You still have separate credit scores."
Bad news for the partner with poor credit: Tying the knot with someone more responsible won't automatically boost your credit score.
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What will merge your finances is adding each other to existing accounts. Adding yourself as a joint account holder or an authorized user on a poor-credit spouse's accounts can lower your credit score, Moogalian says. When you are added to an existing account, that account's credit history now merges with yours, she says.
"You didn't have that account on your credit report before and now you do," she says. "If there are missed payments or past due bills and add you to that account, that shows up on your account. That account will start being added on your credit report like you have had that account and that behavior from the beginning. It creates problems for the good spouse."
For the good-credit spouse: Don't get added to the accounts of your partner with poor credit. Being able to use another credit card is not worth the drop in your credit score.
For the poor-credit spouse: Getting added to your good-credit spouse's accounts can boost your credit score. Just resist doing anything that will hurt your mate's good record.
Compared to being added to an existing account, opening a joint account is the lesser of two evils, Thakor says. "It's a better option, but the risk is greatest for the good-credit spouse," she says. "Once you open that joint account, you are going to be forever matched with the behavior of the bad-credit spouse on that account."
If one spouse has poor credit, that could impact the interest rate you have and cost you more over the life of the loan.
The good news is the new account is a fresh slate -- there's no bad backstory to hurt the credit of the person with good credit. To keep it that way, you want to make sure you or your spouse pay at least the minimum due every month and pay all bills on time, Thakor says.
One danger is that a spouse with poor credit behavior may overspend. "Typically, 30 percent debt utilization ratio is the upper threshold of what's OK," she says. "If you have a credit card with a $10,000 limit and your spouse charges $5,000 to the card, that would be a 50 percent debt utilization ratio. That would be reported on both your credit reports."
Good behavior such as paying bills on time and keeping spending within limits can help a person with poor credit, Thakor says. "If the bills are paid on time, that will be either neutral or positive on the credit score," she says.
For the good-credit spouse: Now that your life is more complicated, automate your bills via your bank account or credit card so that payments are made every month. That way, even if you're busy or in crisis mode, matters don't get worse by adding financial problems, too, Thakor says.
If you're making a major purchase via a loan, consider putting the loan only in the name of the spouse who has the better credit record. Why? Because even though both salaries should qualify you for a bigger loan, having the partner with bad credit on the loan could result in a higher interest rate, Moogalian says.
"If one spouse has poor credit, that could impact the interest rate you have and cost you more over the life of the loan," she says.
Most mortgage lenders will check both FICO scores when evaluating a loan application, according to the FICO website. The low credit score of one partner could even mean you won't qualify for a loan at all as a couple.
For the good-credit spouse: Wedding bells don't have to mean the death knell to your good credit. Separate accounts until your spouse improves his or her credit may be the best bet for both of you
For the poor-credit spouse: Follow these best practices and listen to your spouse when he or she talks finances. With responsible credit use, your credit score should rise over time.
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