When you get married, you will likely wind up sharing many elements of your life with your spouse, including financial goals. But what if your spouse has a mountain of debt or a poor credit score? Can dealing with his or her debt put your own credit score at risk?
The answer depends on how your financial accounts are wed. Will you add your spouse as a joint user on your credit card? Do you plan to apply for a mortgage together? You can manage debt like you manage your in-laws; it takes work, but you don’t have to lose your peace of mind.
Here’s what you should know about your credit history when you’ve married into debt.
There is no such thing as a joint credit report or credit score
Once you get married, your financial record does not merge with your spouse’s. You will still have separate credit reports and credit scores, says Bruce McClary, vice president of public relations at the National Foundation for Credit Counseling (NFCC). But that doesn’t mean your spouse’s information won’t ever cross over to your account.
Joint accounts can add information to both credit reports
If you have healthy credit and your spouse adds your name to an account that becomes past-due, your credit score may be impacted, McClary says.
Missed payments will show up on your credit report because as a joint account holder, you agree to take full responsibility for the debt. New joint accounts that you open during marriage will also be reported on both credit reports, regardless of who uses the account or pays the bills.
If you want to keep your own credit history clean, you may want to ask your spouse not to add you as a joint account holder on accounts with negative information.
If you apply for new credit together, the lender will consider both credit scores
If you plan on applying together for new credit, such as a mortgage or an auto loan, the lender will take into account both credit reports and credit scores.
“Your spouse’s credit history can impact your ability to qualify for a loan and can be a deciding factor with a mortgage,” McClary says. If your spouse has a poor credit score, it may interfere with you getting approved for a loan at favorable terms.
If you are concerned about getting the best terms and interest rates, then you may want to consider applying by yourself, McClary says. While you may not qualify for as large of a loan without your spouse’s income, you may end up with a better interest rate, which can save you money over the life of the loan.
Note that even if you maintain separate accounts, you may still feel the impact of your spouse’s debt. For example, in some states, “most jointly owned property could be seized by debt collectors” to satisfy unpaid debts, McClary says.
Help your spouse improve his or her credit
Whether you’ve already tied the knot or plan to soon, here are a few ways to encourage your significant other to espouse good borrowing habits:
• Encourage your spouse to pay down outstanding debts. If your spouse still has unpaid accounts, help him or her make a budget to pay them off. Loans that are in default will have a lasting impact on a credit report, so it’s important to address those issues first, McClary says.
• Consider a secured credit card for your spouse. A secured card requires a down payment as collateral, and that down payment amount becomes your credit line for the account. By using a secured card, your spouse can add positive information to his or her credit report.
• Consider adding your spouse as an authorized user instead of a joint account holder on your credit accounts. If your spouse has a thin credit file and wants to build his or her credit history, you can add him or her as an authorized user. This way, your credit behavior will be added to your spouse’s credit report. However, keep in mind that authorized users are entitled to use the credit extended to the card holder but have no legal responsibility to pay the bill, so you will continue to be responsible for paying the bill on time. If you allow your spouse to use the credit card, make sure you trust him or her entirely to spend within an agreed-upon limit.
• Work with a credit counseling organization. Your spouse may also want to consider connecting with a financial professional for help in developing better credit habits.
Additionally, it can be a good idea to check your own credit report regularly so that you can keep track of how any joint accounts are impacting your credit score.
Diane Moogalian is vice president of operations for Equifax Personal Information Solutions. Prior to joining Equifax in 2007, Diane held several strategic roles with leading financial services companies.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.