You’re engaged, or thinking of tying the knot? Congratulations! Hopefully you’ve already had at least one conversation about credit and financial planning. For those of you who are concerned about how marriage might affect your credit, this information might help.
Let’s first get a few facts straight about marriage and credit.
Your credit files don’t merge when you marry
When you get married, the only thing that is likely to change on your credit report is your last name, if you change it. Your credit history remains yours and yours alone.
Your credit score is unaffected by marriage
Your score is not affected by your spouse’s score. There is no such thing as a joint credit score.
Many factors influence your credit score – primarily payment history, debt utilization ratio, age of accounts, inquiries and credit mix (VantageScore also considers the total dollar amount of your debt). But many other factors have no effect at all. That list includes:
- National origin
- Political beliefs
- Sexual orientation
- Place of residence
- Employment status or length of employment
- Family and child support obligations
- Inquiries not initiated by you
- Employer inquiries
- Interest rates on current or past credit products in your file
- Participation in credit counseling
- Marital status
- Spouse’s credit score
Changing your last name does not erase your previous credit history
Good or bad, your credit history is yours to keep. When you change your last name you’ll see it updated on your credit file and you may also begin to see a list of aliases that include your old name, your new name and combinations of the two. The items reported on your credit history will be unaffected.
Marriage does not make you responsible for your partner’s defaults (usually)
In most states, even while married, spouses are individually, separately responsible for the debts they incur in their own names. In community property states, however, debts incurred during the marriage are the joint responsibility of both spouses, even if the contract is only signed by one. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In those states, if an account opened during the marriage goes into default or collection status, it may negatively affect the credit profiles of both spouses.
Marriage does not unlock the door to your spouse’s accounts
Marriage does not automatically give you access to your spouse’s accounts or make you an authorized user or joint owner.
The way one spouse handles money inevitably has an effect on the other spouse and on household finances overall. Clearly, if one spouse is a saver by nature and the other a spender, the couple will have a hard time reaching financial goals together. If, on the other hand, a spouse with great credit can help her partner achieve the same, both will benefit from the wider credit opportunities that result.
Your spouse’s credit profile is most important when it comes time to apply for credit together. You may want to rent an apartment or make a major purchase together, only to find out that the poor credit profile results in rejection or poor terms.
Some financing opportunities, namely mortgages, may be severely limited if both spouses are not able to jointly apply because one has bad credit.
If both spouses work and contribute to the monthly household expenses, then it stands to reason that the couple will be able to borrow more money for a home if they apply together. Unfortunately, if one spouse has bad credit, the spouse with good credit may not be able to reach this financial milestone. The couple may be approved for a loan amount that is less than desired, or offered unfavorable loan terms, or rejected altogether.
The time to start building healthy credit is about two years, and no less than six months, before you plan to apply for a loan.
The breadwinner takes all the credit
A common scenario in households where one spouse earns all or most of the money is for that spouse to handle the financial matters, leaving the nonworking spouse with no opportunity to build or maintain a healthy credit profile. No matter who earns the money, if both spouses want to maintain a good credit score, they each need to be named on accounts that are handled responsibly.
Now, a little bit of bad news. If you obtain a credit product together, like financed appliances or furniture, or a loan to cover wedding costs, or even an apartment where you are both named on the lease, and then you call off the wedding, you’re both still legally obligated to honor the financial contract. Your relationship status has no bearing on your responsibility to honor a debt. If you make a decision not to honor the debt because the relationship went sour, your credit will suffer.
How to help your spouse build credit
If you’ve got great credit, you get extra points for being a great catch. The best way to teach your new spouse to manage finances responsibly is by setting a great example and communicating openly about how you do it. Talk about bills, spending, budgeting and debt often. It doesn’t have to be a long heart-to-heart each time, but repetition and practice are keys to mastery, so do a financial debriefing at least once a week. Perhaps your solid credit score came from being financially conservative, but you don’t feel that you have enough credit knowledge to teach someone else how to do it. Sign up for credit counseling as a couple and learn together.
Do not offer to cosign. A cosigner takes full financial responsibility for a debt in case the primary account holder defaults. The cosigner takes on a great deal of risk but gets no benefit. Although you may believe that you can help your partner build good credit by cosigning, credit education will be far more effective and long-lasting. By teaching your spouse good credit habits, you can help him raise his own credit score in as little as a few months. Soon, he’ll qualify on his own for the credit products he needs, and can take on financial obligations without passing responsibility off to you or anyone else.
Adding your spouse as an authorized user on one of your existing accounts can give a boost to his/her poor credit score if the account is handled properly. All users on the account benefit from a history of on-time payments and low debt utilization. (FICO’s latest scoring model does not consider authorized user status, so this benefit will phase itself out as creditors transition to the newer FICO score.) Some creditors do not consider authorized user status when evaluating creditworthiness.
Even better – help your spouse research, obtain and manage accounts on her own.
If you’re the spouse who has room for improvement in the credit department and you’re lucky enough to be engaged or married to someone who is on top of their credit game, use the opportunity wisely to make a life change for the better.