Many things become shared when a couple gets married: home décor, cars, household chores, the list goes on. But one thing that doesn’t get shared is your credit score.
“There is a huge misconception out there that once you get married your credit crosses over, but that is not the case, you won't inherit the other’s good or bad credit simply for exchanging vows,” said Credit Score expert Linda Ferrari.
Ferrari, who is based in Orange County, Calif., said she has recently seen an increase in the number of married couples with varying credit scores looking for advice on how to manage finances.
“I have news for you: a strong credit score is now a 740 - that will give you the best rates. At the end of 2008 it used to be 680 was a good score.”
So, what do you do if you have a strong credit score and your spouse, well, let’s just say isn't at 740?
“If the spouse with a stronger score has the income to justify the loan, then it's better financially for the family to write the loan in one name,” said John Ulzheimer, Consumer Education for Credit.com. “They will get the better interest rate because they will be treated as a lower-risk borrower.”
However, if yours is the better score and you alone sign the loan's bottom line, remember your better standing is also taking on all the risk.
“You have the sole liability for the payment and if it’s not paid, you will be the person sued for the debt,” according to Ulzheimer.
Two People, One Purchase
However, for big-ticket items like homes and cars, income requirements often require both individual's names on the loan. In those cases, lenders will look at both scores and take the lower of the two.
“They will pull three reports for each person and take the lower of the middle score and they will always default to the lower risk person,” said Ethan Ewing, president of Bills.com
How to Handle Plastic
To keep interest rates low on your credit cards, the person with the stronger score should just add the other to already-existing accounts.
“You would be shooting yourself in the foot if you applied jointly; if you add a person to your line their score won’t get pulled.”
If Necessary, Choose One "Fall Guy"
Life doesn't always go as planned and if you have to incur a negative credit history, choose what spouse is going to get dinged. And whatever you do, don’t divvy up the hits, Ferrari warned.
“The person making less money or no money should take the hit. It’s a tough decision but it is also necessary so you can continue to make purchases.”
Maintain Credit Independence
There is an old-school thinking that every purchase a couple makes should be made with both accounts, Ulzheimer said, but people should always maintain some credit independence after they get married.
“If the divorce rate wasn’t 50% we wouldn’t be talking about this, but half the people who get married will get divorces, and de-mingling credit obligations is very hard to do.”
Improve Your Loved One’s Score
If a credit score is low due to negative history not much can be done, and the score will improve over time, said the experts.
Ferarri worked with a couple looking to get a home loan, but the wife’s score wasn’t strong enough to get a good rate. “All they did was add her to her husband's credit card line and she automatically got 60 points added to her score because it gave her history — which is 15% of a score.”
And don’t max out your cards. It shaves off 80 points automatically. Even if you pay it off right away, you will still lose points, Ferrari said.
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