Getting married soon? Wondering how that might affect your credit? Here are the 5 Credit Facts Every Couple Should Know before they Tie the Knot.
Discussing your finances before you get married may not seem like the most romantic thing to do but understanding how your credit score can be affected by your partner is extremely important. According to marriage.com trouble with finances is the number 2 cause of divorce in America. So sitting down together and disclosing your respective debts beforehand can be a great benefit!
Despite what the current interest rates may be the actual rate you pay for your mortgage is related to your credit score! Here are the 5 Credit Facts Every Couple Should Know before they Tie the Knot.
1. Getting Married doesn’t wed your credit scores. It’s a common misconception, but getting married doesn’t combine your credit scores. According to the website equafax.com, Getting married will not automatically merge your bank accounts or merge your credit reports. But keep in mind that if you open a joint credit card, the account activity will be shared on both of your credit reports.” In other words, if one of you misses a payment on a joint credit card, both of your scores will suffer.
2. A spouse’s debts can torpedo your score. If both of your names are on a credit card account, car loan, or mortgage, a lender will come after both of you if payments aren’t made, regardless of who’s supposed to be responsible. Even if you haven’t co-signed and your spouse defaults on his or her debts, you’re fair game for collectors if you live in what’s called a “community property” state, which is: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
3. You still need income to get credit in your own name. Regulatory changes mean even if your partner has a good job, your income is what matters if you’re trying to get a credit card. Federal Reserve rules that kicked in last fall stipulate that only an individual’s income can be used to determine their creditworthiness. Previously, lenders looked at household income, which meant that a stay-at-home spouse could still get a credit card solely in his or her name. So if you’re planning to leave the workforce, keep at least one credit account solely in your name.
4. You can give a partner with a poor score a boost — but do it carefully. “We’ll often have people that are going to become married and they’ll say, ‘My spouse has poor or no credit,’” says Melinda Opperman, senior vice president at nonprofit Springboard Credit Counseling. In this case, the partner with good credit has a couple of options. “You can make them a joint account holder or an authorized user on a credit card,” she says. “Your credit score is going to help them tremendously to increase their score.” Going the joint-account route will mean opening up a new account, so don’t do this right before you’re planning to apply for a big loan like a credit card or mortgage. You can apply for a joint credit account with them, or make them an authorized user on one of your existing credit cards. This option is also a little riskier; if an authorized user runs up a big bill, you’ll still have to pay it, but you can kick them off the account without having to close it entirely.
5. You can’t average away a partner’s poor score. If you’re applying for credit jointly, the lower partner’s score often will dictate what kind of rate and terms you get. Lenders have some discretion if partners come in with very different credit profiles and may consider both scores, but they won’t average them together. In other words, there’s no way to completely camouflage a horrible score. According to Barry Paperno, consumer operations manager at MyFICO.com, “When one score for each borrower is obtained by the lender, such as in credit card and auto lending, a minimum score requirement exists for the lowest of the two scores.”
