Getting married is a big step, and so is communicating honestly about the joint finances and creditworthiness of both parties who are about to say “I do.”
To keep the honeymoon going long after the last day on the beach or the ski lodge, it’s a great idea for partners to put all their financial cards and credits scores on the table, and figure out the best strategies for living a healthy financial life together.
One big component of couple financial disclosures is sharing credit reports and scores; it’s a good idea to do this before walking down the aisle.
Before your financial houses and credit reports join you in holy matrimony, here are five myths to help you cut through common wedded credit misconceptions:
1. When I marry, if my spouse has a lower credit score, it will negatively impact my score.
Your credit reports, as well as your credit scores, are tied to your Social Security number, and since these don’t merge when you get married, neither do your reports or scores.
2. I will lose my credit history when I change my name to my new married name.
If your credit is bad, this may seem appealing, but it doesn’t happen. Your credit history is linked to your Social Security number and remain the same. As you update your new married name with lenders, this name will appear on your credit reports as one of your aliases.
3. Interest rates for homes and cars purchased together will be lower because we have more income being married.
Interest rates are based only in part on your income. Other factors include debt to income ratio and credit score, and if your combined debt also goes up or one of you has a low score, it could mean higher interest rates.
4. Joining our finances means I will take on the debt burden my spouse accumulated before we were wed.
While you are not legally responsible for the credit card balances created before you tied the knot, taking the approach of “it’s your debt, you deal with it” may not be a wise decision. Without judgment, let this be an opportunity to work together to pay it off and create better spending habits.
If the debt is significant, a prenuptial may be in order to protect the assets of the debt-free party should the debt carrier die or fall into default. Additionally, if you get divorced, all bets are off on who pays for what. In other words, prepare for the worst and expect the best.
5. After the wedding, I will automatically become a joint user on my spouse’s accounts.
Marriage doesn’t automatically make you an authorized user on a credit card; it still takes a phone call. But be careful with this--if you have the better credit score, you can help improve your spouse’s score by making him or her a joint account holder on your accounts. However, if you become an authorized user on his or her credit card, the negative credit record could show up on your report. In any case, opening new accounts together is a safe option as long as the card is paid on time, and has an excellent payment history.
And now, put it all away and enjoy a long-lasting honeymoon!
Adrian Nazari is CEO and founder of Credit Sesame. Previously, he was the founder and CEO of Financial Crossing Inc., an organization consisting of financial industry, technology, and academic experts and advisors dedicated to the development of next generations of “Liabilities Management” and advisory solutions for financial services sector. He pioneered the emerging industry of Liabilities Management and was founder and CEO of FinancialCircuit where he brought first of a kind mortgage and liability management solutions and business processes to the lending and financial advisory market before it was acquired by Linsco Private Ledger in 2004.Mr. Nazari has a Masters in Business Management from Stanford Graduate School of Business where he was a Sloan fellow.