Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
Dear To Her Credit,
If a married couple who uses joint accounts, thus
potentially affecting each other's credit, has only one person on the mortgage,
could they separate their accounts to separate their credit? Then if they went
into foreclosure, would that only affect the one spouse's credit? -- Cari
Dear Cari,
You don't need to do anything to separate your credit. There
is no such thing as a joint credit history, and the joint or separate status of
one credit card or mortgage account does not affect the credit history of any
other account or cause information from other accounts to somehow merge. Every
account stands alone.
You could have a dozen joint credit cards with your husband,
but if the mortgage is in your name only, the history of the mortgage account is
on your credit history, not his.
A joint credit card account can affect another person's credit if the history of that account
is a problem. For example, if you had an account on which you had missed a few
payments before you met your husband, and then you added him as a joint
account holder, that account shows up on his credit history and dings his
credit score.
Going into foreclosure is a cause for concern to both of
you, however, even if your mortgage is only in one of your names. Consider:
If you live in a community property state and you stop making your payments, the bank may decide
to collect from your husband. Arizona, California, Idaho, Louisiana, Nevada,
New Mexico, Texas, Washington and Wisconsin are community property states, and
Alaska has opt-in community property laws. In those states, most assets and
debts held by a couple are considered to belong to both of them. (There are
exceptions, and the laws for community property states are not identical.)
Foreclosure is generally accompanied by
financial chaos and stress. If you are having trouble making payments, it may
be hard to keep up with other payments, including some that belong to him.
After foreclosure, the two of you need a place
to live. Can you buy or rent a place based on his income and financial
information alone? Will a landlord look askance at a foreclosure, regardless of
whose name it was in? In this recession, foreclosure is losing some its stigma.
Still, a landlord looking at two tenants may prefer the couple that didn't just
default on a loan.
If it sounds like I'm trying to discourage going into foreclosure, I am. Almost any financial decision is better than foreclosure. I'm
no fan of bankruptcy, but with a Chapter 7 or Chapter 13 bankruptcy -- which calls for a court-supervised repayment plan -- you might
at least save your home. Other options include finding a way to salvage your
financial situation and remain in your home, getting a loan modification, selling
your home for whatever you can get for it (even if you have to bring a check to
closing) or doing a short sale (selling your house for less than the mortgage
balance, with an agreement from the bank that they will not collect the
difference.)
I'd also discourage couples from the idea of keeping all the
delinquent accounts in one spouse's name so they can preserve the other
spouse's record perfectly clean. If one spouse already has a much higher credit
score, it makes sense to do whatever you can to keep it that way. However,
turning one spouse into the financial fall guy is a bad idea. It's not fair,
and it feels too much like pitching one of you overboard. At some point, the
spouse with the beaten up credit history is going to need a better credit
score. And if -- perish the thought -- something happens to the marriage, that
spouse can find himself or herself in a desperate situation.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: January 7, 2011
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