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Love and Money: Three Credit Related Myths to Consider

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With Valentine’s Day fast approaching, and considering it’s one of the most popular days for marriage proposals, I thought it would be a great time to take a look at a few credit related relationship myths. Before you tie the knot, keep in mind these top three credit myths:

Marriage Credit Myth #1: When you get married, your credit reports and credit scores merge.

This is a common misconception about credit reporting. When you get married absolutely nothing happens to your credit reports. Credit reports are maintained at the individual consumer level, not at a joint or family level. This means you will always have your own individual credit report and your new spouse will have his or hers.

However, this doesn’t mean your credit reports are full of mutually exclusive information. If you decide to apply jointly for credit accounts, then those accounts will show up on both of your credit reports. In fact, after many years of doing this, your credit reports might look almost identical.

Now, there is one scenario that might confuse you into thinking your credit reports merge when married. When you apply for a mortgage loan the lender is going to pull all three of your credit reports and all three of your co-applicant’s (typically your spouse) credit reports. The credit reports are going to go through a process of merging, which gives the impression that you have joint credit reports. Rest assured, this is simply a cosmetic exercise that mortgage lenders use to simplify weeding through six individual reports.

Marriage Credit Myth #2: We have to apply jointly now that we’re married.

No, no, no. When you get married there is no “rule” that you have to apply jointly for credit or that you have to add your spouse to your credit cards as a joint cardholder. In fact, you can continue to maintain your credit independence for as long as you wish.

The only real benefit for applying jointly is that the lender considers both of your incomes when deciding what to do with your credit application. For credit card accounts, it makes absolutely no sense to jointly apply. For auto loans, again, it makes no sense to jointly apply. For mortgages, it might make sense because you may need two incomes to qualify.

Keep in mind that when you jointly apply for credit, both of you are fully liable for payment. Both of you are equally at risk for any negative credit reporting or collection actions if the account goes into default. And, as previously mentioned, joint accounts will show up on both of your credit reports.

Marriage Credit Myth #3: Divorce absolves me of my spouse’s debt.

This is one of the most common myth in the world of consumer credit. When you apply jointly for credit you are about as stuck as you can be. And, the process of divorce isn’t going to help you. In fact, it’s much easier to divorce your spouse than it is to divorce your lenders.

Here’s the takeaway…a divorce decree does not supersede the original contract with your creditor. So while the judge might tell you to pay the joint car loan and your ex-spouse to pay the joint mortgage, you’re both still equally liable for the payments.

This can cause problems several ways. First, when you apply for anything down the road, the joint debt is still going to be considered your debt. This means any measurement of your debt-to-income ratio will include joint debts, even after divorce.  Second, your credit scores are still going to consider these joint debts because they’ll still be on your credit reports. This can lead to lower scores because having debt, especially credit card debt, isn’t usually a good thing for your credit scores.

Finally, if for some reason your ex-spouse can’t or won’t make the payments on the joint credit account, the late payments are going to show up on your credit reports as well as his or her credit reports. That also means lower credit scores – for both of you. And with a divorce rate somewhere near 50%, this is why I always advise that you maintain credit independence even after you get married.

Image by Darwin Bell, via Flickr.com

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