Marry Your Spouse, Not Their Credit Score
If you are getting married, you might be a little worried about how the marriage will affect your credit score, especially if your spouse’s score is lousy. But right off the bat, let me dispel this rumor: Your credit score and your spouse’s credit score will never be merged together. What your spouse does in his or her own name (past, present, or future) will not hurt your credit score…
As long as you do not join accounts.
When you get married, your behavior still counts toward your credit score, and your spouse’s behavior still counts toward your spouse’s credit score. If you pay your Visa bill late, the late payment will not hurt your spouse, so long as the credit card is in your name only. If your spouse has a mortgage payment and defaults, the default will be on your spouse’s credit report only—so long as the mortgage is in your spouse’s name only.
Most people approach marriage and credit with a one-for-all, all-for-one attitude. They apply for car loans as a couple, open joint credit card accounts, and stop building separate credit histories. After all, they have joined their lives together; why not marry their credit histories?
This might sound like a great idea, but the truth is that you should never vow to join all of your credit accounts. Keeping some credit accounts separate has big advantages. In fact, holding credit jointly puts a couple at even greater risk during times of financial crisis. Here are two common credit pitfalls of marriage.
Marriage and Credit Pitfall #1: Keeping All Credit in One Spouse’s Name
Opening all credit cards and loans in one spouse’s name is not wise, but unfortunately, it happens all the time. This usually happens when one spouse works a nine-to-five job and the other stays home with the kids. The spouse with the paycheck opens all credit in his or her name. Here’s the problem, though…
What happens if something happens to the working spouse? A bankruptcy, death, loss of income, or divorce would make the other spouse vulnerable. Because no credit is the same as bad credit, the stay-at-home spouse would have no ability to secure a loan.
There’s another problem with this strategy. Let’s switch this scenario up a bit and imagine that both spouses work. The wife has a part-time job with a small salary, so all of the credit is in the husband’s name. The couple decides to buy a home. To qualify for a loan, they need both spouses’ income. The couple now has a big problem: The wife has no credit history, so her score is low. Putting her name on the home loan would endanger the loan. And the husband cannot qualify for the loan on his own—he needs his wife’s income for that extra boost. Most likely, the couple would not qualify for the loan. At a minimum, the couple would pay a higher interest rate.
This pitfall can be avoided if both spouses build their own credit scores.
Pitfall #2: Joint Credit Cards and Automobile Loans
Imagine that Jack and Diane are married and have joint credit cards and joint automobile loans. When Jack loses his job, the couple struggles to make ends meet. After a couple of months, they start realizing that they cannot afford all of their bills. So they stop making payments on several credit cards and on one of the two car loans. The credit card bills are sent to collections and the car is repossessed. And both Jack and Diane’s credit scores are trashed in the process.
Now let’s see how the same situation would play out with Peter and Paula, a married couple with separate credit cards and automobile loans.
When Peter loses his job, the couple creates a strategic plan about their forthcoming financial problems. Peter and Paula know they can only afford to pay all their bills for three months; the money will run out after that. Peter searches high and low for a job, but is unsuccessful. After three months have passed, the couple decides to stop paying credit cards and car loans in Peter’s name. They stay current only on bills in Paula’s name. Of course, Peter’s credit score suffers. But Paula’s remains pristine. This means that Paula is able to apply for loans in her name, while Peter learns how to rebuild credit.
One last thing: This isn’t to say you should never hold a single joint account. Sometimes, putting your spouse as an authorized user (at least temporarily) is a great way to help your spouse build a credit score. But be strategic. Make sure that you each of you build your own credit score.