It’s good to rescue people – as long as you don’t jeopardize yourself in the process.
This reader faces very common circumstances: getting hitched to a credit history that’s not as good as theirs. Check out her email…
I am getting married next year to a man I love who has awful credit. We have discussed our finances extensively and will be going through a church based financial course next month.
Because I love personal finance (and your newsletters), I have offered to help him clean up his credit report. I have stellar credit (around 800 and his is at around 600). Minus getting old collections off his report (I am going to attempt payment for delete letters) and him being consistent on current debts, I wanted to know: Is it a good idea to add my fiancee as cardholder to one of my credit cards (whether he uses it or not) in order to boost his credit score? Trust is not a factor. I absolutely trust him, I just want to know if this move would jeopardize my credit in any way.
Thank you for consideration,
Congratulations, Heather! Here’s some information for you.
What does marriage do to credit?
An important thing to remember as you approach the altar is that you can merge your life and your money with your honey, but you’ll always have your own credit file. So marrying someone with a bad credit score won’t negatively impact yours. Nor will taking out joint credit accounts, as long as payments are made on time.
When you apply for a loan together, the lender will evaluate your application based on both scores. There’s no set formula for the way a lender looks at them: They could average your scores, place more emphasis on the score belonging to the higher earner, or use any other possible permutation.
Many lenders reserve the lowest rates and best terms for borrowers with a score of 760 or higher. So if Heather and hubby apply for a mortgage with their current scores – 800 for her, 600 for him – it’s likely they won’t get the lowest rates and best terms.
So Heather’s got a good thought – help her man raise his score.
Authorized signer, co-signer, or joint account?
Heather can potentially help her future husband in several ways: She can add him as an authorized signer on one or more of her credit cards, create a joint account with him, or co-sign a loan for him.
Authorized user: If Heather adds her fiance to an existing account as an authorized user, he’ll have permission to use her credit card but isn’t responsible for any of the debt. Her payment history for that account will be reflected on his credit report. If the history is good, this will give his credit history a boost. However, since he’s not responsible for the debt, it won’t do as much for his credit report as a joint account would. If she decides to later remove him as an authorized user, she can.
From Experian’s website:
Authorized user accounts are included in a credit report and can be considered when making lending decisions. However, an authorized user has no responsibility for repayment of the debt. For that reason, they often have less bearing on a lender’s decision, and may not be included in some credit score calculations.
Joint account: Heather could start a new credit card account with her fiance. Both credit histories are considered, both are liable for the balance, and neither can be dropped from the account. The payment history will be reflected on both credit histories and influence both credit scores. If the history is good, this will obviously help him. But remember that with a joint account, both people are equally liable. The credit card company doesn’t care who charged what or whether you like each other anymore – if the bills aren’t paid, they’ll come after both parties.
Co-signing: Co-signing is essentially the same thing as joint – both parties are responsible. But when you co-sign, you could get all the risk with none of the benefit. For example, if Heather co-signed a car loan for her fiance, the car might be titled in his name, but if he doesn’t make the payments, the lender could look to Heather. When you co-sign, the payment history would be reflected on both credit histories.
Because co-signing offers the same credit risk as a joint account with none of the benefit, it’s not a good idea. See 3 Reasons You Shouldn’t Co-Sign That Loan.
Bottom line? If Heather really wants to help her beau, and totally trusts him, joint credit accounts would probably provide the biggest benefit.