Must-knows when someone in the relationship has unfavorable credit
Are wedding bells in your future? Thinking about popping the question to the love of your life? Now that you and your partner have decided to share your lives with one another, finances also come as a part of the life that you’ll share.
Until now, maybe you haven’t considered how your future spouse’s credit history will affect your financial future. If you’re curious, this post may answer a few of your questions about credit before you say “I do.”
Q: Will my spouse’s credit score impact my credit score?
A: Your credit score is, well, yours. The day you say “I do” isn’t going to automatically merge your credit score with your significant other’s, according to Experian.
However, if you and your spouse have different credit backgrounds and you apply for a loan together, your spouse’s history could impact your interest rate and the amount you qualify for. If their past has left their credit in a not-so-good place, but you have stellar credit, their credit could prevent you from qualifying for a loan altogether. Or you could end up paying a higher interest rate for financing, according to MyFICO. Carefully consider each other’s credit history and plan strategically when applying for credit after marriage.
Q: Will my partner’s debt become my debt, and vice versa?
A: It depends. When you were single, if you took out loans or accumulated debt, these are typically still your financial obligations, even in marriage. (The same goes for your spouse, too.) The accounts you opened before marriage usually only impact your credit score, too—that is unless your spouse adds their name to your accounts. Your spouse might do this if you have excellent credit and they have poor credit. Having their name associated with accounts in good standing (meaning minimum payments are always made on time) may help them improve their credit, according to Experian.
Now that you’re in this life together, you can work on paying off debts together, but that doesn’t mean you inherit each other’s debt.
Q: Can I apply for a loan without my partner when we’re married?
A: Of course! Say you want to get an unsecured loan, but your spouse has bad credit. It’s OK to apply for a loan solely under your name. According to the Consumer Finance Protection Bureau, creditors cannot even ask if you’re married, unless you are applying for a secured loan or joint loan.
The exceptions are community property states. If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, your spouse’s poor credit could affect your ability to get a competitive loan as creditors will most likely look into both credit histories. Alaska couples can also choose to opt-in to this system.
States with this law view couples as a “community,” or one entity. The community automatically shares incomes and debts during the marriage, in most instances. Each state has variances on this law, which you can find on IRS.gov. Couples may also draft contracts before getting married (or after divorce) to create their own rules for splitting debts and assets.
Q: How can we work together to keep our credit in good standing?
A: When both of you know your account balances, spending patterns, and due dates, this knowledge can help ensure you don’t overspend—and that you pay your bills on time. Communication will help you keep your joint accounts in good standing. After all, when you always pay your minimum balances on time, over time, this could improve your credit score.
You’ll also want to check your credit report annually to look for suspicious activity.
Start the conversation about credit and finances in your relationship.
Talking about how to manage joint accounts, incomes, and debts is important. Ask each other, “Who will be responsible for monitoring accounts, paying bills, and budgeting?” Traditionally, one spouse handles the majority of this task to prevent overlap or confusion. However, couples with excellent communication skills can split the share of financial responsibilities. Budgets can be made together, accounts can be monitored by one or the other or both—and bill paying can also be shared or one person’s task. Also, decide if you want to join forces to tackle debts or unfavorable credit standings. Coming to a mutual agreement in this area may not only improve your finances, but also ensure your relationship is on the same page financially. Money isn’t the most romantic topic to discuss. But a well-planned financial future for you and your spouse means your relationship has a good foundation for happiness in the coming years.
This information is presented for educational purposes only. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.