When you decide to get married, there are a million things to consider (besides just planning the wedding)! Where will you live, if you and your spouse aren’t already under the same roof? And perhaps most intimidating of all, there’s money. Do you set up joint bank accounts? What do you do about tax returns? And retirement savings?
While you work through these questions, there’s another very important matter, also financial in nature: credit scores. What are each of your credit scores like, and how do they figure in to your financial goals?
A recent survey from Bankrate found that more than 42% of Americans (half of women, and 35% of men), said that another person’s (low) credit scores might make them less interested in dating that person. So, don’t worry, you aren’t being unreasonable in asking this question.
First, let’s clarify one important point: You and your spouse will continue to have separate credit reports after marriage. Every adult American has a credit file that is his or her own, from the age of 18 or so, until death.
At no time will your credit file actually merge with that of your spouse. Your credit report is associated with your Social Security Number, and that won’t change.
With that said, what appears on your credit report, can (and often will be) affected by your spouse. You might choose to apply for a credit card as joint account holders. In this case, both of your credit scores will be considered, when seeking approval for this card, and you’ll each enjoy all the benefits of the card, in terms of use, online account access, and so on.
At the same time, you will each be responsible for payment of all bills on the card. If one of you is responsible for paying the bill each month, and forgets to pay, a late payment will appear on both of your credit reports. If the two of you haven’t kept track of purchases made on the card, and one of you buys something expensive, it is possible to end up above 30% of your credit limit, which will decrease both of your credit scores.
What about mortgages? Most married couples try to qualify for a mortgage together. This means that each partner’s income, debt, and credit scores will be factored into the calculations. Lenders take the median (middle) of each spouse’s three credit scores, and use the lower of those two scores, in deciding whether you’ll qualify for the loan, and if so, at what interest rate.
Let’s imagine that your Experian, Equifax and TransUnion mortgage credit scores are: 720, 730, 740 (your median score is 730). Your spouse’s scores are: 630, 640, 650.
Most lenders will use 640 (your spouse’s median score), to determine the mortgage terms (i.e. down payment and interest rate). They didn’t use your middle score, since your spouse’s was lower.
In these situations, some couples choose to have only one spouse apply for a mortgage. This is particularly true when the other spouse’s credit score is too low to qualify for a mortgage. Of course, this often means buying a home of lesser value, since only one spouse’s income will be factored into mortgage payment calculations. If you’re not appearing on the mortgage, your income and assets won’t be considered, when deciding which sort of home you’ll qualify for.
Of course, when you first get married, no one ever wants to consider this question: What if things don’t work out, and you end up getting divorced? What happens to your credit accounts then?
If you opened a joint credit card, or perhaps a personal or auto loan, you are both responsible for money owed on this account. Even if a divorce court orders that the account is one spouse’s responsibility, creditors typically aren’t bound by divorce courts, but rather, by the contract you signed with them.
Therefore, if the spouse who is supposed to take care of this account, chooses not to pay, the account will appear on your credit report, and you can be held responsible for the amount owed. This can even involve being sued in court, by the lender who claims you owe them money.
You do have options in these situations. You can return to court, and demand that your spouse reimburse you for the money you had to pay to the creditor. Of course, whether your spouse has the money, and you’re able to recover anything, is another matter.
Marriage can be one of the happiest, most meaningful experiences that any of us will ever enjoy. Yet, the reality is that our finances, and certainly our credit, can be heavily impacted by marriage.
For this reason, it makes a lot of sense to have a real conversation, about your credit status, goals, and concerns, before you take the big leap. Doing so will help ensure that both you and your spouse are as informed and aware as possible. Communication is, after all, a key to any successful relationship.
