After dealing with the astronomical costs of a wedding, many couples face a slew of financial decisions they’ll make together. Many of those depend on credit, which is one of the financial issues to talk about before marriage.
While getting married can impact credit, changes might not happen in the ways you think.
Before you panic about your spouse’s bad credit, consider these myths and tips you might not have heard elsewhere.
Don’t fall for credit and marriage myths
There are several myths related to marriage and credit. Popular ones include:
- Your credit score will merge with your spouse’s. There’s no such thing as a joint credit score. You’ll both maintain your own scores and use them as individuals when you apply for loans both jointly and separately.
- Your credit score will decrease from getting married. Similar to the point above, there’s no truth to this.
- You’ll be responsible for your spouse’s previous debt. While state laws vary, none put you on the hook for debt your spouse racked up before marriage. Debt incurred jointly after marriage will be both of your responsibilities.
All these points aren’t to say that your spouse’s credit doesn’t matter, as I’ll explain next.
In it together: Joint credit cards, mortgages, and loans
Even though you won’t become one with your credit scores, there are many cases when both credit ratings will be used together. This typically happens with a mortgage, credit cards, or other loans.
For example, if you’re applying for a home mortgage using both incomes on the application, which is common for married couples, both of your credit scores will be checked. In this case, the lower credit score will likely negatively affect the rates you can get.
When you open these lines of credit together, both sides stay on the account, even in divorce.
Money and divorce: Far from a myth
Unfortunately, money and divorce are closely related. The New York Times, pointing to a study by Jeffrey Dew at Utah State University, says: “Of all the things couples fight about, money disputes were the best harbingers for divorce.” The study reported that the more frequently couples fight about money, the higher the risk of divorce.
While divorce deals with a lot of legal issues, it doesn’t clear up all of these credit-related issues between the formerly-married couple.
Typically joint accounts can only be separated by closing the account, repaying the entire balance, or refinancing the loan. That means if one partner is awarded the house after a divorce, both names stay on the mortgage until one of these actions is taken. Even though only one person may be responsible for making payments, both partners’ credit is on the line. Lenders do not recognize court orders from divorce, as some divorcees have found out the hard way.
Getting out of this jam might not be easy, either. Refinancing is far from automatic, and it’s much harder or impossible if your mortgage is underwater.
A solution: Keep credit separate
John Ulzheimer makes a convincing case on the Mint.com blog for keeping credit separate as much as possible. He explains:
So when you’re standing there in court or in the lawyer’s office agreeing on the terms of the divorce, there’s one very important party missing: your lenders. Since your lenders are not a party to the divorce agreement, they are not bound by its terms.
This is the primary reason you should attempt to maintain credit independence while you’re married. It has nothing to do with machismo. It has nothing to do with whether or not you love the other person. It has nothing to do with trust. And it has nothing to do with whether or not you think the marriage will last. The stats don’t lie. This is about being practical.
While many newlyweds hate to admit this fact, the divorce rate hovers around 50% in the U.S. That means that you’ll more or less have a 50/50 shot of ending up in a credit mess if you aren’t careful.
But you can take extra steps to make things easier, just in case. These choices really aren’t very controversial, either.
For credit cards, add a spouse as an authorized user rather than applying for joint credit. Adding someone as an authorized user comes with many of the same benefits as a joint account with fewer risks. Authorized users can be removed from an account without having to close it.
Avoid loans where both incomes are needed to qualify. The exception to this is a mortgage, where it can be tougher to qualify with only one partner on the loan. But auto loans often don’t need both incomes, so don’t mix credit here if you don’t have to.
(photo: Kim Marius Flakstad)