In an effort to help readers better manage their finances, mental_floss has teamed up with personal finance expert and award-winning podcast host Farnoosh Torabi to answer your most pressing credit- and money-related Big Questions. Have a question you’d like to ask? Ask it here, or by tweeting it @mental_floss.
Long-term relationships and marriages are about coming together as one: Mingling families, life goals … and finances. But contrary to popular belief, married couples’ credit is not technically combined once the “I dos” are done, Torabi tells mental_floss. Still, partners’ credit profiles can affect one another in situations like joint loan applications, she says, and it’s key to get on track as a pair.
Although married couples may share bank accounts or credit cards, they retain their own separate credit profiles, including reports and scores. When it comes to joint accounts, the payment activity gets reported to both partners’ credit profiles and affects their scores equally (even if one person is technically paying the bill).
If a couple jointly applies for a loan, “lenders will review each person’s credit health individually before extending credit to a couple,” Torabi says. So if one spouse has a low score and the other has a great one, together as co-applicants they may be seen as less desirable and may not receive the best terms for a loan.
In search of a better interest rate a couple may opt to have the partner with the better credit profile apply as a single applicant—but that means the lender will consider only that person’s income, which could result in a smaller loan.
And bank-loan applicants who opt to go it alone might find that the bank asks about total household debt. “For a mortgage, banks may also want to view previous tax returns,” Torabi says. “If you file jointly then they may technically see your spouse's income. And the overall household debt plus income may factor into your eligibility.”
That said, couples with differing credit profiles needn’t delay the wedding bells, Torabi notes, “but it’s important to make credit repair a top priority.”
Start by settling in for a chat. But rather than play the blame game, Torabi suggests focusing the conversation on future goals as a couple—which “can be a source of excitement and enthusiasm to help you then take the appropriate steps with your finances.”
After adopting this future-focused frame of mind, it’s time to take action. “The partner with the healthier score could add the other as an ‘authorized user’ to his or her credit card, which eventually with good payment history could help boost the spouse’s credit score,” Torabi says. (But, she cautions, not all card issuers report authorized users’ history to credit bureaus, so it’s important to do your research first.) Consider setting up auto-pay for some bills to ensure on-time payments, which may boost credit over time. Keep in mind that when you add a partner as an authorized user to your credit card, the payments are ultimately your responsibility.
Be mindful that time heals all credit wounds, Torabi says. For partners with no credit: The length of credit history comprises around 15 percent of a FICO® Score, so scores may improve as time passes, assuming he or she makes on-time payments. For those with checkered credit pasts, mistakes like late payments do take time to fall off credit reports. The good news is that each year their impact on scores is lessened.
“Understand that improving your credit takes time,” Torabi says. “Be patient with one another and know that with good behavior, credit scores can improve.” By mapping out your financial futures—that means talking about good credit behavior, regularly—you’ll be on your way to financial success, individually and as a team.