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The Ugly Truth About Marrying Bad Credit

If you’re thinking about marrying that special someone, now is the time to talk about money, credit and financial goals. Don’t wait until after the wedding to find out the ugly truth about marrying bad credit.

Even if you’re uncomfortable talking about finances, you must find a way to ease into the conversation. You cannot share your life and future with someone you can’t talk openly with. If you have good credit and your true love has bad or disastrous credit, slow down. You need to understand how that person’s bad credit affects your relationship and future before you tie the knot.

The good news: your spouse’s credit score will not affect your credit score.

You do not take on your spouse’s credit, good or bad. There is no such thing as a joint credit score or a joint credit report. That said, both credit files affect your ability to obtain financing as a couple. If you have great credit, you improve your chances, as a couple, of getting a good financing deal. If your partner has bad credit, however, they increase the likelihood that you’ll be turned down or offered more expensive terms when you apply for credit as a couple.

If you currently have no credit and your partner keeps all accounts in his name, your ability to get credit terms will depend completely on his score and history. And in the event of a divorce, you’ll have to build your own credit from scratch.

The bad news: your spouse’s financial behavior will affect you in the future one way or another.

Once you start combining accounts, your partner’s money management skills will most definitely affect you. If the utilities are in your name and your partner is responsible for paying the bill, make sure that bill is getting paid on time every month. If the two of you are on an apartment lease together and the property reports rent payments, delinquencies will be reported on both credit files — even if you can prove that you gave your half of the rent to your partner on time each month.

If you keep your finances totally separate and your partner has bad credit, you will be forced to rely on your credit alone when the time comes for a major purchase, such as a home.

If your partner has bad credit and you combine finances, you’re in for a rude awakening. Let’s say you borrow $150,000 together to buy a home. Because of your partner’s credit history, your interest rate is 6.5 percent instead of 4.5 percent (the lower rate is only available to borrowers with great credit). His poor credit score will cost you $90,276 over the life of the loan.

What does credit have to do with the relationship?

Your ability to work toward joint financial goals will be very much affected by your partner’s money management skills, good or bad.  You’ll have a very hard time reaching goals together if one person is irresponsible with money, such as by paying bills late, failing to save money, maxing out credit cards or defaulting on financial obligations.

Even if you keep your credit files completely separate and you don’t plan to work toward joint goals (which many would consider unhealthy in a marriage), bad credit says much about a person’s lifestyle, behavior and level of financial maturity and it should raise a red flag. At the very least, bad credit is an indication that this person isn’t ready to take on adult financial responsibilities.

Fast- forward five or ten years. If you’re a saver, you may experience great disappointment when, as a couple, you are unable to set aside money for a vacation, a new appliance, a home or some other purchase that improves the quality of your life together because your partner spends every dime or is trapped in revolving debt. This kind of dissatisfaction can be very hard to overcome because the only real antidote is a complete lifestyle change and shift in values. In fact, nearly 30 percent of people who divorce cite differences over finances as a factor that led to the divorce.

What if the credit-challenged partner is truly dedicated to improving their credit?

A person with great credit can absolutely help their partner improve their credit. Communicating frequently about money, setting a daily example and providing moral support and accountability are excellent tools. Indeed, if you plan to build a life with this person, you’ll want them to have a better score when it’s time to proceed as a couple on a major purchase.

For a quick boost to your partner’s credit score, consider adding them as an authorized user on one of your accounts in good standing. The catch is that the account must remain in good standing. Otherwise, prepare for two consequences: (1) your credit could suffer, and (2) you, as the primary account holder, are liable for the debt (even if your partner incurred some or all of it).

Realize that you can’t make the changes for your partner. They have to learn to be responsible with money, even if they offer to relinquish every paycheck and let you handle the bills. Walking away from bad behavior does not equate to learning and practicing good behavior.

If you’re not married yet, don’t merge your finances until your fiancé has demonstrated responsible financial behavior for a period of time. You should see measurable progress over the course of 6-12 months. The changes might be difficult and frustrating, and setbacks are likely. Don’t expect perfection just because your partner wants to change. And remember that it could take a year or two or longer for his credit score to improve significantly. But if you don’t see progress in that first year, let that be a warning that he is not ready to change.

Ready to tie the knot?

We asked Jacquette M. Timmons, president and CEO of Sterling Investment Management, Inc., and author of Financial Intimacy, for tips on handling this sticky situation.

Don’t write off a credit-challenged spouse. Timmons sometimes sees couples where “the person with good credit is completely writing them off,” a dynamic that could be damaging to the relationship. “It’s important to take some time to understand the why,” she adds. “That can give you insight into the character of the person and their plan. Also remember that your credit score fluctuates several times within a given year.”

Figure out the root cause. According to Timmons, uncovering why the person’s credit score is low can help you determine a course of action. “Is it poor discipline in terms of paying their bills? Overconsumption? Or a byproduct of having been out of work for a couple of years and living off of credit?” she asks.

If it’s the latter, she adds, they may be able to bounce back once they’re earning a steady paycheck again. But if the issue runs deeper, you may want to have a conversation about how those choices impact their financial present and future. Ultimately, you must determine what affects credit score to help him improve.

Discuss how you’ll handle credit as a couple. The person with a higher credit score may be able to help their spouse boost their credit by adding him or her as an authorized user on an existing credit card. Those payments are reported to bureaus and count towards their credit score. However, that option is “dependent on both being in agreement about how credit cards are being used and that it will only be used for certain purchase,” says Timmons. “Sometimes you don’t need to have a check-in. But other times the agreement has to be if the purchase is over X number of dollars, you’ve got to discuss it first.”

Of course, there’s no rule saying married couples must have joint credit or checking accounts, so you could opt to keep things separate.

Schedule regular money dates. Once you’ve discussed your approach to handling credit cards, it’s a good idea to touch base with each other on a regular basis. “The couple that sets aside time once a week to check-in see a marked improvement in their communication overall and they begin to see that what they’re doing is having a positive effect,” says Timmons. “People have an unrealistic expectation around how long it’s going to take [to improve their credit score]. It took them awhile to get into that situation, so they’re not going to be able to reverse it overnight.”

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