In addition, to the many other financial matters on my mind – I have been wondering lately about how my husband and my individual credit situations impact each other’s credit rating. I have been working really hard at keeping a lid on our family debt and my husband has been doing the same. Since February, we’ve worked hard to get his debt in check however each of us have our own credit habits that may or may not affect each other in individually and collectively. Either way, I would like to know this for sure.
As you know, your credit history will have many important implications for your future as a borrower. If you are worried that your partner’s bad credit habits will impact your own credit rating – here are some details that may help you improve your financial future.
As a married couple, you are likely to have future loans you will take out together – whether that be a mortgage, a car loan or another large financial purchase. As a result, you are also likely to have one or more joint accounts. When creditors assess your loan applications, they are required by law to take your joint account information into consideration. As a couple, you will want to do your best to communicate your financial responsibilities to each other and work together as a team to make responsible financial decisions.
However, both of you have previous credit histories and scores that follow you into your marriage and these individual scores do not cease to exist now that you are a couple. While your credit ratings do remain separate – they can affect each others rating indirectly. Any credit you take out in your own name will only be reflected on your credit rating, and likewise with any credit your spouse takes on in his. However, what exactly happens when you take out a joint loan in both of your names?
When you both go to take out a shared loan, this is where your credit rating will be affected. For example, when it comes time to apply for a mortgage – this typically being a joint venture – if one of your credit scores is poor, it may be more difficult to take out a loan of this size. Even if you can secure your mortgage – any bad credit on either side could mean a higher interest rate and less desirable mortgage terms overall.
If you know your spouse has poor financial management skills, leading to a lower credit score – there are still some ways you can protect your personal credit rating and maintain a stronger credit history yourself. First of all, open communication is key – try to sit down with your partner or spouse and have a successful budgeting meeting.
Strategies to Protect Your Credit Rating
1) If possible, take out the mortgage or loan in your own name – with a strong credit rating, not only do you have a better chance at securing stronger loan terms – your credit history won’t be affected by your spouses, in this instance.
2) Consider keeping at least one checking and credit card that is separate to your joint account. This means you are responsible for your own payments and any poor habits on your partner’s part – will not impact your credit rating, regarding actions taken on these accounts.
3) An alternative option you may consider, if your spouse does have poor financial habits is to actually go a head open a joint account anyways. If you both work together to keep payments on track and share the responsibility – this may be a chance to help your partner improve their credit score, which is a benefit to both of you.
4) Another reason for keeping your own credit card, whether it be personal or joint is to keep your credit history active. If your spouse, regardless of maintain strong credit scores or not, is the one who has taken on the credit management – this can leave a gap in your credit history. If your credit history drops off the map, even for a short time, your credit score can be affected.
Although, your credit ratings remain an individual entity, with any joint account movement – each of your credit histories will still be affected. Being aware of which actions you both might be taking that are having destructive implications to your credit ratings – is a good first step to resolve this issue and improve your chances of obtaining any loans you might need down the road.
These are some really helpful tips that I plan to incorporate into our financial management and will help ensure my husband and I can reach our mutual goals. Couples and money can work hand-in-hand and I know we are up for the task!