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While finding a marriage-worthy mate is marvelous, your excitement may wane if that person comes with bad credit. You might wonder how your own credit will be affected, and worry that you'll be suddenly saddled with your spouse's debt. The good news is marrying someone who has bad credit doesn't necessarily affect your credit—at least not right away. But there are several serious financial considerations you'll need to think about.
Here's what you need to know about tying the knot with someone whose credit report indicates a troubled financial past.
What Happens to Your Credit When You Get Married?
There is no such thing as a merged credit report. After marriage, your credit report will remain yours and vice versa for your spouse. If you applied for a credit card or loan before you were married, the lender granted the account to you, and ownership doesn't change. Therefore, the lender will continue to send the account's activity to your credit report only. The same goes for credit problems, such as debts that were referred to collection agencies, judgments, liens and bankruptcies. They will never leap from your spouse's credit report to yours.
However, this doesn't mean that you will be totally immune from the fallout if your partner has a poor credit history. If you apply for credit products as a couple, your spouse's dings can dent your plans.
For example, a home purchase might be in your future, but if you're financing it as a couple, the lender will take each of your financial and credit situations into consideration. Your spouse's low credit scores will either result in a higher interest rate (which can increase the cost of the loan by tens of thousands of dollars) or prevent you from qualifying altogether. To get around this problem, you can apply for the mortgage in your name only, but then your spouse's income won't be factored in. The interest rate you get might be attractive, but the loan amount might fall short of what you need to buy the property.
If you open credit cards and other loans together, they will be listed on each of your credit reports as jointly held accounts. Ownership will be shared, and the two of you will be considered equal partners. If one of you fails to pay the bill, the other needs to step up and get it in on time. If you don't, both of your credit reports will be hit with a late payment—and that will hurt both of your credit scores.
Another circumstance where a credit card may appear on multiple credit reports is when one of you gives permission for the other to be an authorized user. The authorized user will have a credit card imprinted with his or her name and can make charges. The account will show up on both of your files, but ownership remains with the primary account holder. If either of you wanted to end the arrangement, you could, and at that stage the account would no longer be listed on the authorized user's credit report.
What About Debt?
Good news: If your spouse entered into the marriage with debt, it will not end up in your legal lap. Of course, it might be a wise idea to deal with a big balance no matter who ran it up because high debt affects credit utilization, which is a major credit scoring factor. It also impacts the amount of disposable income the two of you have to cover bills, enjoy life and save for the future.
Not so good news: What happens during the marriage is a different story. If you live in a state with community property laws—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Alaska (where you have the option to opt in for community property rules)—and you end up divorcing, financial obligations are typically shared between the two of you. That means you might have to pay for a debt that you didn't accrue, agree to or even know about. The other states have common law property rules, so if you live in one of them, debts that were incurred by one spouse remain that person's liability. The exception is if the balance was for the family's essential expenses.
How to Help Your Spouse With Bad Credit
Now breathe: Bad credit is not the end of the world. With effort and time, you and your spouse can develop a positive credit history and scoring difference. Here's how:
- Identify the damage. Pull your individual credit reports for free, and show them to each other. Your spouse may have some regrettable data showing up, but you, too, could have some problems that need addressing. Be candid and understanding.
- Get to the root of the problem. Find out the underlying reasons for your spouse's bad credit. You'll want to know if it was due to overspending, not planning for emergencies or some other issue. Once you know it, you both can work to change it.
- Develop a plan of action. If you discover a slew of collection accounts, pay them off one by one. If late payments are driving credit scores down, make sure they're paid on time, starting now. Aim to reduce credit card balances to less than 30% of the credit line to reduce your credit utilization. Help and support each other.
- Review progress regularly. Choose a day of the month, like the first or the 15th, to sit down and check in with each other. Every few months, view your credit reports to see how you're doing.
- Consider making your spouse an authorized user. If you have a credit card that's in excellent standing, you might want to share the love by making your partner an authorized user. Then, not only will that well-managed account be helping your own credit rating rise, it will also give your spouse's credit a push upwards.
Finally, remember that time heals credit wounds. Whether your spouse's credit report is riddled with delinquencies, shows a bankruptcy, or contains any other true but unattractive data, you can take comfort in the ever-ticking clock. Negative information eventually ages off. As long as you do all the right things from this point forward, together you'll be in a far better position than you are today.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.