Don't say 'I do' to bad credit
How couples can navigate financial waters before getting married
With financial squabbles topping the list of reasons why couples seek divorce, experts say it makes sense to check out your partner's creditworthiness before you get married.
New couples heading to the altar happily "deal with social and sexual issues and yet the financial issues are the ones more likely to cause a divorce than anything else," says Mike Sullivan, a personal finance consultant in Phoenix.
Before you say "I do," experts say you should get to know each other's financial health.
While more than three-quarters (77 percent) of couples surveyed by Ameriprise Financial said they’re on the same page as their partner, only 20 percent say it’s a work in progress. Three percent of couples said they don't agree with their partner on financial issues, and those couples are more likely to fail to communicate about purchases, the survey found.
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Although numerous difficulties can lead a couple to part ways, many divorce lawyers say money is often a primary factor for the split (with lack of communication, infidelity and dishonesty also cited).
How does a couple get off to a
good financial start?
Partners must communicate about finances before, after and during the wedding process, Sullivan says.
1. Review the credit basics.
Among the things you need to find out are your intended's credit score, credit history, spending habits, debts and assets, say experts.
"The credit report reflects how a person manages money,” Sullivan says.
It also helps to know and discuss your beloved's guilty spending pleasures, such as a new $500 Coach purse every season or a new $80 Xbox game every week. Can your new spouse forgo these expenses in a pinch or are these items not negotiable?
The most important questions: "What's your credit score, and do you know your credit score?" says Mechel Glass, financial education program analyst at the Consumer Financial Protection Bureau. Once you have those discussions and you know what's on each other's credit reports, you can work to improve that, she says.
2. Outline long-term financial goals.
Financial planners say a newlywed couple should plot out their collective financial goals -- whether it's buying a house, having kids, taking annual European vacations or saving for matching Harley-Davidson motorcycles in retirement. Doing so can help pave the way toward smoothing out any credit-related kinks that might bankrupt these dreams, Glass says.
If your partner gets a bit squirmy about discussing financial goals, Glass suggests being the first one to break the ice.
"They can just say, "I'm showing you the things on my report, so let's look at yours and talk about how we can work together as a family to get the things we dream about for our family in the future,'" says Glass, who taught an online financial education primer for newlyweds.
3. Pay down debt burdens.
If there’s a large amount of debt bringing down your partner’s credit score, this is a warning sign, Sullivan says, as it could severely affect your life together.
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“When you look at that credit report you should add up the unsecured debt amount and if that amount is more than a person earns in a year then it’s time to suggest that you date around,” Sullivan says.
the financial situation before racing to the altar.
If a couple’s credit scores are widely different, then the would-be partners have work to do, Glass says.
What's the couple to do? First, the "good credit" spouse could be the one to apply for any loans or other forms of credit. Then, the "good credit" spouse can teach the "bad credit" spouse why it's important to pay off bills, not carry a balance and to be timely with payments, she says.
"If one person has a horrible credit score and the other has pristine credit, you probably want to keep those separate and work with the other person to correct the things they're challenged with," Glass says.
The best scenario, however, is to take the time to build up each other's credit before you tie your financial future together, experts advise.
Avoid learning the hard way.
Looking back, Melanie Davis wishes she and her husband had paid off his credit card debt and worked on his credit score prior to getting married. But before they were married, it didn't seem like a huge deal.
At the time, she scored in the low 800s. His credit score? Very low, she said.
"I knew he had bad credit going into it, and looking back now, I really wish we had resolved that before we got married," said Davis, of Charlotte, North Carolina. "We didn't attempt to try to do anything to fix it. ... His credit card debt was over $10,000," she said.
Although the newlyweds got a house, Davis had to apply for the loan by herself and added her husband to the deed only after the closing. They had talked extensively about their finances during their engagement, but didn't make moves to fix anything until after their nuptials.
Davis recommends all couples have a serious credit conversation and pay off all major debts before marrying.
In Davis' situation, assuming her partner's credit also sped up the process. For example, Davis had applied for a low-interest credit card from her credit union and then transferred her husband's debt over to that card. Happy with the much lower interest rate, they worked together to pay off that debt in just six months. That method worked better than just hoping that he'd pay off the debt by himself, she said.
The Davises' solution was feasible because the couple communicated openly and tackled the problem together, two moves Sullivan believes more couples should make.
Who should be
financially in charge?
So, how do you improve one person's credit while keeping yours clean? Couples could consider adding the "bad credit" spouse as an authorized user on the "good credit" spouse’s credit score so that the positive account history of that card will beef up the score of the spouse with the poorer credit. Care must be taken if such arrangements are created, Sullivan says.
"You can help somebody improve their credit if you want to by lending them some of your creditworthiness," Sullivan says. "Or you can pay their bills for them. If you're going to protect your own credit, you've got to decide who's most responsible. Whoever has the highest credit score pays the bills and controls the money."
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Couples should remember that nearly everything they need to build a financial life together is tied to a credit score and credit history, including necessities such as insurance, turning on new electricity service, ordering cable and financing a home.
While marriage alone doesn't mingle two credit scores, lenders consider both credit histories when applying for large loans together, such as for a mortgage or cars.
Once your credit is tied to a spouse's, separating the two becomes nearly impossible and it becomes extremely important that both partners work together to keep their credit scores high. If the phone bill is in the woman's name and the man is responsible for paying the bill, but pays late, there could be problems. If the phone bill is in the woman's name and the man is responsible for paying the bill, but pays late, there could be problems, said Jerome Tellis, a Florida-based financial adviser and former with MetLife employee.
MetLife doesn't use credit scores to help underwrite insurance policies, but the company does look at credit histories, Tellis said. That includes all those boring bills.
"There is a direct correlation between a person's credit history as well as their claims history," Tellis said. "If their credit history is not more favorable, they tend to file more insurance claims. Credit history is only one of the many factors that go into the underwriting process for insurance."
Tellis suggests that couples ask their agent to use the more favorable credit history when applying for coverage. He also says couples should check each other's credit history for bankruptcy, unpaid student loans and foreclosures -- as they all can impact favorable treatment.
Start talking ASAP
Soon-to-be-wed couples should consider all these issues upfront, so the marriage will have a much better chance for success. Just ask Davis, who occasionally thinks about the money she spent to repay debts that weren't technically hers.
Looking back, she suggests that couples consider postponing marriage until debt and credit issues are resolved. That way, she says, the honeymoon is sweeter.
"Finances to me are the biggest root of a problem for marriage," Davis says. "If you don't have your finances in order before you get to the wedding, you'll be fighting about it. I promise you will."
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