If you know you are marrying someone who has a credit score that is poor, there is no need to panic because marriage doesn’t necessarily mean your credit score will be affected. Most credit agencies maintain separate records and won’t mix them when you get married. However, managing your accounts can be tricky, and it is worth investigating before making financial decisions to keep your score in good standing. This article may help you to know how your credit score is affected by joint accounts and joint credit applications as well as learn more about how you can protect your credit score after marriage.
Tying the Knot Doesn’t Result in One Credit Score
You might have assumed that when you get married, you and your spouse’s credit histories will be merged. The truth is, each credit score is associated with one social security number, and getting married does not change that fact. Nevertheless, you and your spouse’s report will:
- Show the addition of your spouse to your existing account
- Reveal accounts you have jointly opened
- List any accounts you have co-signed
If you’re wondering “what happens if I take my husband’s last name,” you’ll be happy to know there won’t be any change to your score as credit card companies, banks and other credit agencies don’t care whether you change your name. Your credit will stay exactly as it was before you married.
Your Spouse’s Bad Credit History Can Affect Joint Credit
Whether you’re seeking a loan from a bank, a credit union, a car dealership or an online lender, the creditor will review your report before deciding to the terms of the loan and how much interest to charge. If you are taking the loan jointly, both of your credit reports will be considered, and you will have to pay a higher interest rate if your spouse has bad credit. If your income and assets are enough, you can avoid the impact of your spouse’s bad credit by applying for a loan individually.
Consider Credit Counseling
There are several credit building tools that can help you repair bad credit. Experian, Equifax, and TransUnion are the three major credit reporting agencies, and they will provide a free copy of your credit report once a year. You can start by evaluating your report in case there are items listed that does not belong to you. If you discover anything listed that is not yours, formally request for it to be corrected. Unfortunately, credit card companies can make mistakes, or your privacy could have been breached, and someone may have stolen your identity.
Husband and wife attending credit counseling together can help both of you build a sound financial future. You can learn how to manage finances and also gain a better understanding of how to negotiate with creditors. Credit counseling can give you more confidence to set up a budget and follow through on paying back existing loans.
Difference between an Authorized User, a Joint Account Holder and a Co-signer
An authorized user has access to your credit but has no liability for any debts incurred. A joint account holder has access to your credit and is liable for the debt. You are a co-signer when you sign for someone else to get a loan. Here are five things to read and consider if you’re trying to decide which is better for you:
- Removing an authorized user is a lot easier than removing a joint account holder.
- When FICO calculates your score, it does not consider authorized user status.
- If your spouse is an authorized user on your account, it does not necessarily affect his or her credit score.
- If you have a joint account and your spouse is spending using a joint credit card, it will lower your individual credit score.
- If you don’t plan to share an account but are considering being a co-signer for your spouse, it’s important to know that as a co-signer, you are fully responsible for the debt. If the debt is not paid back as agreed, it can bring down your credit score.
You May Be Liable for Some of Your Spouse’s Debt
There are some instances where you are required to be responsible for debt incurred by your spouse after marriage even if you don’t merge accounts. In community property states, when the debt incurred benefits your marriage, it is generally deemed as community debt, and both of you are responsible. Most states are common law states where you are only responsible for your own debt; however, the states listed below are community property states:
- New Mexico
The Pros and Cons of Merging Accounts
If you plan to marry but don’t know the credit history of your soon-to-be partner, ask him or her. Although personal finance is not going to be the deciding factor of your marriage, arguing over moneycan be a strain on a relationship, and it is always a good idea to resolve any issues associated with your finances before marriage in a stress-free manner. To decide whether you should merge or not, start by putting both of your financial assets and liabilities on the table, including:
- Real estate
- Business loans
- College loans
- Mortgage payments
Review your situation together and find the reasons your spouse-to-be has a bad credit rating. If the cause is an isolated problem in the past due to unemployment or illness, it is possible with a proper debt payment schedule in place to build up a good credit score. If it is an ongoing issue that affects the present or your spouse has had to file for bankruptcy, then it is a more significant problem. Depending on the cause, it may be better to keep your accounts separate until your spouse improves his or her credit history. The most important action your spouse can take is to use credit cards responsibly and pay bills on time. Then, over time, his or her credit score will improve. Once you are confident that the information on your spouse’s records will not put off creditors and affect your ability to receive a loan, you can merge your accounts.
Whether you decide to open a joint account or not, the best advice you could follow is to still keep your personal accounts open. If either one of you has excellent credit scores, marrying doesn’t have to change your long positive record. You can continue to reap the benefits of your good credit history.