In any relationship, each person brings his or her own baggage. I’m not just talking about emotional baggage—there is also financial baggage of which you should be aware. Before you say, “I do,” keep in mind that you’ll be making a promise to stand by your spouse for richer and for poorer because money is one of the top reasons many couples fight.
If your soon-to-be spouse isn’t as financially fit as you, it doesn’t mean you should call off the big day. However, you do need to have some discussions with him or her before you walk down the aisle.
Joint accounts vs. separate accounts
Before you get married, decide whether you will both deposit your earnings into a joint account or keep your finances separate. Joint accounts could potentially lead to a financial emergency, especially if one person is not tracking what he or she is spending or is spending more than what is in the account.
On the other hand, having separate accounts creates unique issues. For example, you might be unable to see what your spouse is spending or saving. This could lead to problems later because it could result in two people living off of one person’s savings and retirement.
There is no right or wrong answer, but you should have a plan before you tie the knot. In a healthy relationship, there has to be some give and take—an important concept when it comes to your money or any other important decision.
Your first house
The good news is that if you both are working and you apply for a loan jointly, the lender will look at your combined income. The bad news is that the lender will also look at each of your credit reports and your combined debt-to-income ratios. If one spouse has blemished credit or a lot of debt, that could mean a higher interest rate on the loan—or possibly a complete rejection of the application.
Does this mean that if your significant other has bad credit, you can’t get a house? Maybe, but it could also mean you can afford less house as you may face a higher interest rate that increases your monthly payment. You may simply have to apply for a loan in your name only, but this means you will only qualify for a home you could afford on your own instead of for a home you could afford on both salaries.
Bad credit can haunt you for years, so you should both be aware of your personal credit histories and debt situation before you get married. This may raise some red flags around which you will have to plan. Does your spouse have a lot of debt? You will need to make sure the accounts don’t become past due. Is your spouse a heavy spender? You may want him or her to start using a joint card to encourage wiser spending habits. Are you considering applying for a joint credit card with someone who might not have a stellar credit score? You might want to consider just adding him or her as an authorized user to get better terms.
If you are the one who doesn’t have stellar credit, you can be added as an authorized user, but be aware that not all companies report authorized users to the national credit reporting agencies (CRAs), so you might not get any credit for paying your part of the bill.
There are always pros and cons with each route you choose. The point here is that you need to have a plan before your wedding day. Love is blind, but lenders aren’t. They will look carefully at your credit history, so make sure you are making financial decisions with your head and not with your heart.
Steve Repak is a CERTIFIED FINANCIAL PLANNER™ professional, CFP® Board Ambassador, and financial literacy speaker. He is also an Army veteran and the author of Dollars & Uncommon Sense: Basic Training For Your Money. Follow him on Twitter: @SteveRepak
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.