Your Joint Debt Can Affect Your Individual Credit Score
Lets say you take out a loan jointly, meaning you filled out the loan application together and its in both of your names. Your spouse agrees to make the monthly payments, but forgets and doesnt pay the bill for two or three months.
Because this is a joint account, the late payments may be reported on both of your credit reports with the three credit reporting agencies, Experian, Equifax, and TransUnion. So, even if you didnt know about the late payments, they can affect your credit score.
Before you borrow money jointly, make sure youre on the same page about who will make the payments and when, and communicate frequently about the loan during its duration.
Financing The Engagement Ring
The first major purchase for a couple planning to marry is often the engagement ring or rings. Many people still hold onto traditional ideas about how much one should spend on an engagement ring and want to be able to purchase an expensive ring for their partner. The average cost of an engagement ring in 2019 is nearly $6,000!
Those who dont have the cash on hand to pay for a lavish ring may feel that they need to finance one in order to please their partner or keep up with the Joneses, but be mindful of the impact this could have on your credit.
If you want to take advantage of an in-house financing plan at the store where you are purchasing the ring, youll likely have to open a retail credit card with the store. The inquiry on your credit report might ding your credit score by a few points, and the new retail card account will lower your average age of accounts, which is also likely to affect your score.
In addition, if the of the store card is close to or the same price as the ring, then your individual utilization ratio will be very high or maxed out on that account, and it will also contribute to an increase in your overall utilization ratio. This makes you look riskier to lenders and thus has a negative impact on your credit score.
Before financing an engagement ring, make sure you know how it could affect your credit.
Do You Share Debt When You Get Married
Debts you and your spouse acquired before marriage remain your individual responsibilities. After marriage, you’ll undoubtedly assume some joint debts, but the extent and nature of those debts can depend on the state you call home. The so-called “community property” statesLouisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin, along with Alaska, which lets couples opt in to community property rulesconsider both spouses equally responsible for all assets and debts acquired in the course of the marriage. That includes debts and other liabilities racked up by either spouse, even if the other spouse is unaware.
Residents of the remaining states, as well as Alaskans who choose not to opt in to community property rules, follow “common law” rules, under which spouses can assume debts and own property as individuals but also take on joint debts that benefit both parties as a family.
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What If Your Spouse Has Bad Credit
If you are marrying someone with bad credit, you might wonder how getting married affects your credit score, and whether your spouses poor credit will bring your own credit score down.
Getting married does not automatically change your credit score. You and your spouse will continue to maintain your own separate credit histories and scores. However, marrying someone with bad credit could affect your finances in other ways.
There are many reasons why someone might have bad credit. Maybe they took on a lot of credit card debt during a period of unemployment, for example, and fell behind on the payments. Maybe a parent took out credit cards and loans under their name. Maybe they made a few poor financial decisions when they were young and are currently working to rebuild their credit.
A person might also have bad credit because they are making poor financial decisions in the presentand although those financial decisions might not affect your credit score, they could affect your married life. A spouse who maxes out their credit cards on unnecessary purchases, for example, might have a hard time sticking to a household budget.
A spouse with bad credit could also make it harder for the two of you to take out shared credit accounts, like a mortgageand if a lender is willing to issue you a shared line of credit, you might have to pay significantly higher interest rates.
Other Accounts Included In A Credit Report
Your mobile phone and internet provider may report your accounts to your credit bureau. They can appear in your credit report, even though they arent credit accounts.
Your mortgage information and your mortgage payment history may also appear in your credit report. The credit bureaus decides if they use this information when they determine your credit score
A home equity line of credit that is added to your mortgage may be treated as part of your mortgage in your credit report. If your HELOC is a separate account from your mortgage, it is reported separately.
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How Does Getting Married Affect Your Credit Score
Now that you have a better understanding of credit scores, how does marriage affect credit? When you get married, your credit scores stay the same. The idea that your credit scores merge or lower each other is just a myth. Before you make any financial decisions together, it’s a good idea to seek advice from loan experts. EVEN Financial is a resourceful site that provides an easy, quick, and comprehensive loan search online from top providers. Oftentimes, married couples will pay bills out of a joint checking account. EVEN Financial offers great loans for consolidation to guarantee couples are not paying a ridiculous amount in fees.
It’s important to know that your spouse’s past credit history will not impact your profile. However, when you open a joint account, your information may be shared on each other’s reports. “Credit records which are established prior to the nuptials are never shared, inherited, or combined,” says divorce attorney Bruce Provda. “Marriage doesn’t affect your credit score if you take your spouse’s last name. Everyone has their own credit report and scores, even if they live in a community property state.”
Do All Your Bank Accounts And Credit Accounts Automatically Become Joint With Your Spouse
When you get married, your bank accounts, loans and credit cards dont automatically become joint accounts. Banks and credit card providers dont convert your account unless you ask them to.
That means your spouse doesnt get automatic access to your credit card just because theyre now legally bound to you. You still have to call the credit card provider and add them as a user on the account. The same is true for both checking and savings accounts.
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What Can We Do To Maintain Healthy Credit In Our Marriage
If youâre getting married or are a newly married couple, have a conversation about your future financial goals. Decide whether or not you want to open a joint credit account. If you decide yes, both spouses need to be completely transparent about how their credit history might affect their ability to get approved for joint credit.
If one spouse has a bad credit history, they can be proactive and take steps to improve their credit score before the two of you apply for joint credit. Fixing bad credit will greatly improve your chance of getting approved and receiving a favourable interest rate.
If you donât know your credit scores, you can check your credit score for free with a tool like Borrowell. Itâs recommended that you check your scores before you apply for a loan. With Borrowell, you can instantly see your approval chances based on your credit score.
Itâs also recommended that you review your credit reports at least once a year to ensure that youâre in good standing and that there are no mistakes in your credit history. You can download your Equifax credit report for free by signing up for Borrowell. If you do find a mistake in your credit report, there are specific steps you can take to dispute mistakes on your credit report.
Do You Inherit Debt When You Get Married
No. Even in community property states, debts incurred before the marriage remain the sole responsibility of the individual. So if your spouse is still paying off student loans, for instance, you shouldnt worry that youll become liable for their debt after you get married.
If you signed up for a joint credit card before getting married, then both spouses would be responsible for that debt. But the act of getting married doesnt cause you to inherit debt signing up for a joint account is what makes the debt your responsibility.
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Any Shared Credit Will Affect Both Your Credit Scores
That said, there are ways in which getting married can affect your credit. If you and your spouse open a joint credit account or co-sign a mortgage, any activity on the shared credit account could affect both of your credit. If your spouse is responsible for paying the mortgage bill and accidentally misses a mortgage payment, for example, both of your credit scores could suffer. On the other hand, if you and your spouse both practice good credit habits on all of your shared credit accounts, both of your credit scores could benefit.
You Can Build Better Credit Together And Separately
There are many ways to improve your credit, including reviewing your credit report to ensure there are no inaccuracies, and if there are, working with a credit bureau to correct. Also, paying off outstanding debts shown on your credit report can aid in staying on top of your credit health.
The most important thing is for both you and your partner to get serious about your debt management. Even if you each have separate credit scores, your destinies are still intertwined. If one of you has bad credit and doesnt take steps to fix it, you could miss out on buying a home, borrowing money to start a business, or other financial goals.
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What If One Spouse Has Bad Credit
Marrying someone with bad credit may not automatically hurt your credit score. But your spouseâs bad credit could affect you after you get married.
When you apply for credit together, lenders could look at both your and your spouseâs credit scores. Your spouseâs bad credit might stop you from getting the best interest rate. Or your application might even be denied.
How To Talk About Credit Reports Together
Its normal to enter marriage with individual student loans, auto loans, and possibly even a mortgage loan.
Your new marital status wont affect these existing accounts or your FICO score, even if your spouses credit score is a lot lower than yours.
However, your financial decisions and spending habits going forward as a couple could affect each others credit scores. So its healthy to talk through these issues as a couple.
You could start by getting your free credit reports at annualcreditreport.com. Each year youre entitled to a free credit report from all three credit bureaus, Equifax, Experian, and TransUnion.
Looking over each others credit files is a good idea for several reasons:
- You get a reliable picture of the debt youll face together so you can make more informed financial decisions.
- You can see whether inaccuracies are pulling down your or your spouses credit score.
- You can make sure your names and addresses appear correctly which can clear up confusion and help avoid identity theft.
Your credit affects your financial decisions, and finances are a big part of any marriage.
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How Debt Is Handled After Marriage
Once you’re married, the rules for how debt liability is divided are a little different. If you co-sign a debtor open a joint credit account togetheryou would share responsibility for those equally. The rules regarding the equal sharing of debt that’s in only one of your names after marriage depends largely on where you live.
If you live in a community property state, most debts incurred after marriage may be treated as the responsibility of both spouses. Nine states have community property laws:
Puerto Rico also follows community property laws. Each state has its own rules regarding which debts fall under the community property umbrella and when both spouses would be considered jointly responsible.
In common law states, debt taken on after marriage is usually treated as being separate and belonging only to the spouse who incurred them. The exception are those debts that are in the spouse’s name only but benefit both partners. For instance, that might include credit card debt if the card was used to pay for basic needs like food, clothing, and shelter.
Who Can See And Use Your Credit Report
Those allowed to see your credit report include:
- banks, credit unions and other financial institutions
- offer you a promotion
- offer you a credit increase
A lender or other organization may ask to check your credit or pull your report”. When they do so, they are asking to access your credit report at the credit bureau. This results in an inquiry in your credit report.
Lenders may be concerned if there are too many credit checks, or inquiries in your credit report.
It can seem like you’re:
- urgently seeking credit
- trying to live beyond your means
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Will A Name Change Create A New History
If a spouse changes their name and reports the name change to credit card issuers or applies for new credit with the new name, the new name will be listed as a name variation on that person’s credit report.
The myth that a wife changing her name erases her past credit history is not true. Since each person’s is directly tied to their social security number, the spouse who changes their name will continue to have just one credit report with accounts under the old and new names.
Sometimes credit bureaus erroneously create a split credit file following a name change, but this isn’t typical, and it’s not supposed to happen. If this happens to you, you can contact the credit bureaus to have your credit files re-merged.
Are Both Spouses Liable For Debts
Unless you both signed up on a joint credit application, your liability for the others debts depends on where you live. If you live in a community property state you will probably be liable for debts acquired during the marriage. In community property states, even if an account is only in one persons name, both parties could be responsible for the debt whether they knew about it or not.
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What To Do If Your Partner Has Bad Credit
Regardless of whether or not you intertwine your accounts after marriage, each partners financial health can impact the relationship and the dreams you have together. While its not the sexiest talking point, it is something that needs to be carefully considered and communicated.
“Its important to decide how to tackle financial responsibilities in a way you are both comfortable with as a team if your partner is working on building their credit,” Bringle says. “I recommend taking a goal-oriented approach to finances and consider what needs to happen to achieve those goals together.”
How A Credit Score Is Calculated
Its impossible to know exactly how much your credit score will change based on the actions you take. Credit bureaus and lenders dont share the actual formulas they use to calculate credit scores.
Factors that may affect your credit score include:
- how long youve had credit
- how long each credit has been in your report
- if you carry a balance on your credit cards
- if you regularly miss payments
- the amount of your outstanding debts
- being close to, at or above your credit limit
- the number of recent credit applications
- the type of credit youre using
- if your debts have been sent to a collection agency
- any record of insolvency or bankruptcy
Lenders set their own guidelines on the minimum credit score you need for them to lend you money.
If you have a good credit score, you may be able to negotiate lower interest rates. However, when you order your credit score, it may be different from the score produced for a lender. This is because a lender may give more weight to certain information when calculating your credit score.
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Myth #: You Must Apply For Loans Together
Though youre married, you can still apply for a loan or credit card on your own. If youre looking to buy a big-ticket item, like a house or a car, you need to consider how much your spouses poor credit could hurt your chances of getting a loan or a good interest rate.
If you dont live in one of the nine community property states those that consider your spouses debts your debts too you can leave your spouse off the application and bypass their credit issues. But if you do this, you cant use their income to qualify for the loan, so you may need to lower your purchase price.
One spouses terrible credit doesnt rule out buying a house or a car, but it can make these purchases a bit more difficult.