Can Your Spouse Hurt Your Credit Rating?
By Sharon Secor
There are many conversations that should be had before making wedding plans, and those that have to do with financial matters and money philosophy should be among them. This is especially important if your spouse-to-be is carrying more debt than you would be comfortable with, as it can indicate that the two of you have quite different philosophies concerning how to manage finances. This could lead to conflict, as well as pose a risk to your credit future.
While a spouse’s poor credit will, for the most part, not affect yours as an individual, it can become an issue if you are planning on blending your finances after marriage or plan to make large purchases together, such as a house. Therefore, it really is important for you and your fiancé sit down together and discuss finances -- not only in terms of credit history and debt, but also in terms of how money will be managed in the future. After all, money matters still rank high as a contributing factor to divorce.
If your fiancé is carrying significant debt, you may want to consider encouraging your spouse-to-be to take steps to reduce that debt before the wedding date. Credit counseling can help to achieve this goal, and there are a variety of means that the individual can use to help reduce the burden of debt as well. If the amount of debt is such that completely clearing it before marriage just is not possible, there are other means of managing the situation.
Rather than immediately blending finances after the wedding, you may decide to hold off on that for a while, and have each person maintain their own individual financial identity. That means, instead of having a joint bank account or joint credit or charge accounts, you may choose to keep separate bank accounts and have the other person as an authorized user on credit cards. During this period of time, it would be a good idea to work towards correcting credit problems and reducing debt, with a goal of attaining fiscal health before a major joint purchase, such as a home.
In the event that a major purchase needs to be made before debt and credit matters are resolved, you'll need to put a bit of thought into how to do it without having to pay more than necessary. That’s because a spouse’s bad credit or high debt can drag down your credit rating as a pair, as well as affect the rate of interest you'll be paying on a mortgage for a house. It can even influence whether or not you are able to get a mortgage at all.
You may want to consider applying for the loan or mortgage using just the name and credit history of the spouse with the better credit. While this has the obvious advantage that a good credit rating brings to this sort of financial move, it also can reduce the amount that you are deemed qualified to borrow, as the figures will be based on one income.
This, however, may not be all bad. After all, you may be better served by taking on a smaller amount of debt now – for example, choosing what used to be called a starter home for now, and working towards obtaining the home of your dreams in the future – leaving income available to pay off the back debts of the spouse with weaker credit. In today’s fiscal climate, there is a distinct advantage to being very careful about taking on nonessential debt and to devoting effort into getting clear of old debts.
In addition to working through matters that have to do with past money management, it is a smart move for you and your fiancé to devote some time and thought to how you will handle your finances in the future. Head off disagreements by talking about how the two of you will run the financial part of your life right now.
Make plans, such as a family budget, and set financial goals, such as an agreed upon amount of money to be put into savings. Decide together what your combined fiscal strategies will be, such as whether to buy things on credit or to save up the money for nonessential wants and reserve credit for things that are agreed to be absolutely necessary.
Your fiancé doesn't have to pose a risk to your credit, not if you communicate clearly and honestly and plan appropriately. Such techniques will serve not only to preserve and enhance your fiscal health, but also the marriage itself.