When you get married and vow to love ‘for richer or for poorer,’ it doesn’t mean relinquishing your financial independence
Key reasons why a woman needs her own credit
- Can provide security for the family in case of emergency involving husband
- Can ease financial transition following divorce or death of spouse
- Can lessen the impact on the wife of credit mistakes made by the husband
When you get married and vow to love “for richer or for poorer,” it doesn’t mean relinquishing your financial independence.
Since women often bear the brunt of their family’s financial stresses, experts say it makes sense for women to have a credit identity separate from their spouse. Even if you open joint accounts, an individual credit history offers protection that can protect you in the event of divorce or death of your spouse.
If you find yourself worrying about your family’s finances, having credit in your own name can also provide you with peace of mind and help eliminate stress in the event there are problems with your husband’s credit or your joint accounts. According to data from the American Psychological Association’s 2008 Stress in America survey, women are most likely to report stress related to debt, family finances and the economic climate. Compared with men, more women say they are stressed about money (83 percent versus 78 percent), the economy (84 percent versus 75 percent), job stability (57 percent versus 55 percent), and housing costs (66 percent versus 58 percent). Women of the boomer generation (aged 44 to 62), and older (aged 63+), were most likely to report the economy as a significant stressor, while women in general rank financial worries above personal health.
See related: Do’s and don’ts for improving your spouse’s score
Holly Carson was still in college when she learned the importance of maintaining her own credit cards. As a bank teller for a local credit union, Carson saw many widowed and divorced women struggling to sort through their finances and debts.
“I left that job determined that would never be me,” says Carson of Norfolk, Va. When she married her husband, Rob, in 1999, Carson kept her own individual banking accounts and credit cards. Her decision served her well when the unthinkable happened a year later and her husband was diagnosed with terminal brain cancer.
While her husband’s credit score suffered because of mounting medical bills, Carson worked to maintain a strong personal credit history that served as security for both her and her young son.
After Rob’s death in 2006, Carson’s high credit scores put her in a position where she could easily qualify for a new home loan to buy a small home.
“I truly believe that maintaining individual credit accounts helped me maintain a strong financial position after Rob’s death. It would have been devastating to lose him and simultaneously be in a financial crisis,” Carson says.
See related: Who’s responsible for deceases spouse’s card debt
Keep track of your spouse’s debt balances and credit scores
When calculating scores, the formulas developed by Fair Isaac Corp., creator of the FICO score, are used most often. Like other credit scores, it assigns a three-digit number that rates how you’ve handled credit in the past. Most experts say that people should shoot for a credit score of 760 or higher to attain lower interest rates on credit cards.
Consumers can get a free copy of each of their three major credit reports annually at AnnualCreditReport.com. Credit scores are also available for a nominal fee.
Jason Alderman, director of financial education for Visa Inc., in San Francisco, agrees it’s important for women to have their own credit identities. He advises all women to build a credit score by establishing credit in their own name.
“Without a credit history, women who experience changes in their marital status can have problems maintaining or obtaining credit,” he says. “If your husband experiences financial difficulties, his mistakes can also impact your credit score.”
If a credit card is in a husband’s name, but the wife is only listed as an additional cardholder or authorized user, she won’t be responsible for any unpaid debts in the event of a divorce — unless, of course, they live in a community property state. In community property states, both spouses are responsible for the debt, no matter who charged it up. States with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an “opt-in” community property state, in which spouses may agree to be jointly responsible for all debts. But if your spouse goes into debt during your marriage on a joint account where you are a co-signer, you will be held liable for it.
See related: Authorized user or joint account holder
Being listed as an authorized user on your husband’s accounts does help women build their own credit identities, however. This is especially helpful if a wife has no income to qualify for credit on her own. The flip side, however, is if you or your husband start making late payments or defaulting on any account, that will negatively impact both your credit scores. “Many women find themselves rebuilding their credit after a divorce or the loss of a spouse,” Alderman warns.
Women who maintain their own credit histories have an advantage in being able to show lenders they are responsible and are good credit risks. For women who don’t have separate credit histories, secured or prepaid cards may be their best bet in establishing or re-establishing credit after a divorce or loss.
I tell women it’s better to choose a spouse who makes $50,000 and has an 800 FICO score than a man who makes $175,000 and has a FICO score of 400.
— Marilyn Logan Investment broker, author
“A secured credit card requires a cash deposit that becomes the credit line for that account,” Alderman says. “If you put $1,000 in the account, you can charge up to that amount and after making regular timely payments, your credit line will often be raised.” Make sure, however, that the card issuer you sign up with reports timely payments to the credit bureaus or the secured card does no credit-building good.
For women who maintained joint credit accounts and have seen their credit scores take hits because of divorce debts or bankruptcy, Alderman says the first step is to begin rebuilding credit histories.
“Women may initially encounter higher interest rates and a low credit limit, but if they make payments on time and keep balances low, they can successfully rebuild their credit,” Alderman says.