Photo (cc) by Lel4nd
You’re in the midst of the most important time of your life. The countdown has begun, and you’ll soon be one with your soul mate.
But have you taken a moment to think about how the two of you will handle money matters? How will the new union affect your credit? And do you even know your soon-to-be spouse’s credit score?
Here are six common myths about marriage and credit you should be aware of:
1. Saying “I do” merges our credit profile
There is no such thing as a joint credit score reported by each of the three major credit bureaus. When you marry, the only modifications made to your credit profile will be your last name (if it changes) and perhaps a new address. In most cases, this doesn’t happen until you notify the creditors or open new accounts.
Once the updates are made, be sure to review your reports for errors, omissions and duplicate records.
2. My spouse’s credit affects my credit
Assuming the two of you had separate accounts before marriage, they will remain that way once you tie the knot. Your debt remains your debt and your spouse’s debt remains your spouse’s debt. Your credit score has no impact on your spouse’s score.
3. An authorized user is the same as a co-signer
When you add someone to your credit card as an authorized user, that person will be granted several benefits: They can use the card, they can benefit from your excellent payment history (but won’t be penalized if you don’t pay the bills on time), and they won’t be on the hook for the debt if you don’t pay the bill.
On the other hand, a co-signer or joint account holder will be tied by a ball and chain to the creditor, and the responsibility will fall back on them if you don’t pay.
4. Once I sign on as an authorized user, I’m stuck
If you’re an authorized user, you can opt out at any time by notifying the creditor, even if you’ve created a mountain of debt on the credit card. At that point, the history of the account will also disappear from your credit profile.
However, Experian notes:
Some states have community property laws that automatically make joint any accounts entered into during marriage. If so, the only way to be removed as a responsible party for the debt is to contact the credit card provider and negotiate with it to change the contract.
5. My partner’s bad credit will hurt my chances at obtaining new credit
Assuming you have a strong credit score and you do not disclose your spouse’s information, you shouldn’t have a problem getting approved if you meet all of the criteria.
However, that’s not necessarily the case if you apply jointly. Your spouse’s poor credit history can subject you to higher interest rates and possibly denial.
Buying a home with a spouse or domestic partner who has a checkered credit history can hurt your financial future. When you apply for a mortgage loan using your joint income, each partner’s credit history typically is weighed equally. If one of you has been dodging creditors or paying bills late, you are likely to pay a higher interest rate to offset the perceived risk of default.
6. If we divorce, I’m off the hook
Making the decision to part ways does not mean you’re free from joint financial commitments made during the marriage, no matter what the divorce decree says.
Need a credit boost?
Do you or your spouse have bad credit? Here are a few things you can do to make things better:
- Pay all of your bills on time.
- Reduce credit card balances and keep your credit utilization low — no more than 20 percent — once you have done so.
- Refrain from opening many new accounts.
- Implement a budget to foster responsible spending patterns and saving efforts.
Were you aware of these myths? Let us know in the comments below or on our Facebook page.