By marrying someone, you are not only committing to that person, but you are committing to their debt and their credit rating. From the moment you become a family, you have to begin working as a team financially. A team is only as strong as its weakest member.
Before the issue of bad credits unnecessary problems within your new marriage, you should be aware of what your spouse’s bad credit will actually mean for you. A credit rating is the assessment of an individual’s creditworthiness, which is determined by their history of borrowing money and repaying debts. Credit ratings are only applied to individuals, not couples. There’s no such thing as a joint credit report, but there are joint accounts which can affect each spouse’s credit rating.
What this means for newlyweds, is that your partner’s bad credit score will not be an issue unless you and your spouse take out a loan together. There are three ways this joint account can affect your credit score:
- Your partner’s bad credit rating may disqualify you for a loan. It has become increasingly difficult to qualify for loans; your spouse’s bad credit could easily limit the number of financing options that are available for the two of you.
- The loan that you do receive will most likely have a higher interest rate and/or higher monthly payments due to the negative impact of your spouse’s credit.
- If you partner continues poor repayment habits, and continues to make late payments for the joint account, both of your credit ratings will be negatively effected.
It can be beneficial to apply for loans using only your good credit rating. The terms and costs of a loan are much more favorable for someone with a good credit rating. However, there are loans that require a large income to qualify, making a joint loan the only option. Many couples encounter this situation when they are purchasing a home. The spouse’s presence on the loan application is necessary to provide additional income, but their poor credit rating is going to cause your interest rate to increase.
The best course of action is to work on improving your spouse’s credit rating before taking out any joint loans together. If you are able, take a period of time to repair and build your spouse’s credit. This will not only improve your ability to take out joint loans in the future, but it will teach your partner to handle their future debt more responsibly. Maintain two separate checking accounts, and credit cards, to sustain your individual credit ratings. Be sure to make payments and pay bills on time. Late payments are the easiest way to bring down your credit rating.
If you are able to take the time to help your partner improve their credit rating and develop positive financing habits, you are then safe to take out a joint loan with them. You will be able to receive more favorable loans and there will be less risk to your credit and less stress within your marriage.