Beverly Harzog is a credit card expert and consumer financial analyst at US News & World Report.
Marriage is a big decision, not only emotionally but financially. What do people get wrong about how marriage affects credit? One common misconception is that you have a common credit report. You still have your own credit report, and the same goes for your credit scores. Another misconception is that you should apply for credit together. You can apply for things like a mortgage or credit card together, but each partner should have their own credit. If you need to create your own credit, for example, due to the death of your spouse or you have obtained a divorce, a difficult situation can become even more difficult.
Are there instances when it would be a bad idea for a married couple to apply for credit together? Let’s go back to the mortgage example. If both spouses have a relatively high credit score, you are more likely to get approved at the best rate because lenders do not see you as a risk. However, suppose one spouse has a credit score 100 points higher than the other spouse’s score. In such a situation, the spouse with the best credit score should apply for the mortgage – assuming he has enough income to apply on his own. Otherwise, you may not get the best interest rate on the loan, or you may not get approved at all.
People mistakenly assume that lenders will only consider the highest scores. They will look at all of your score. If one spouse has a low score, the lender will consider you to be more at risk because of the possibility that that spouse will become liable for the payments. The same goes for applying for a joint credit card.
But what if one of the spouses tries to re-establish or improve his credit standing? First, you need to understand why this pair does not have a good credit score. Is this because they never tried to build credit? Or are their scores low because they missed their bill payments? From there, you can decide if you’d like to help that pair improve their balance by adding them as an authorized user of one of your accounts. If you add your spouse as an authorized user, ensure that the credit card issuer will report to the credit bureaus about your spouse’s use of the card associated with your account. Not all of them do. Next, you need to understand that you are in trouble if your husband has credit and fails to repay it.
How can spouses – whether married or not – maintain good credit habits and avoid disputes over credit? Credit is a team effort. Couples should discuss how much debt they each have, including student loans, how they can work together to improve credit and what they need to do to achieve this goal.
You should review your credit reports regularly. You can still get it weekly for free from credit bureaus through April, but even after that you are entitled to a free credit report from every major bureau once every 12 months. So every four months, both of you should pull a credit report from a bureau and review it for accuracy and signs of fraud. And if you notice that something isn’t right, make sure both of you file a dispute with the credit bureaus.