Is Your Debt in Your Name? Why it Matters
When dealing with credit, it’s actually quite easy to skip over your own credit history without even knowing it. Student loans are often opened in parent’s names, as well as first cars and sometimes even credit cards. It’s also quite common for individuals to use their spouse’s name on loans after marriage.
If you fall into either one or both of these categories, it’s possible that you have very little credit in your name if any at all! While it can feel safer to avoid taking on debt whenever possible, this can also mean avoiding building a credit history and actually owning the assets in your life. You could be making payments and contributing to the bills, but sadly, you’re not getting any credit for your hard work — literally. Here’s why at least some of your loans, bills, and debts should be in your name.
How Your Debt Affects You Personally
When debt is reported in your name, your personal credit score is affected. This is a good thing, because this means you’re building your own credit history. You have control over how your credit score is affected by your loans. Pay on time, and you build a positive history. If all of your debt is in someone else’s name, you might have very little on your credit report, which can hurt you later when you go to apply for your own loan.
Being financially responsible with things like your cell phone bill, utilities bills, and rent are essential to being a financially successful adult. However, none of these things will necessarily affect your credit score. They will negatively affect your score if you don’t make the payments on time for long enough, but sadly these items don’t always require a credit check, so they aren’t consistently reported on your credit history. If none of these expenses are legally in your name, then you know they are not affecting your credit, even if they are being reported to the credit bureaus.
How to Check if Debts Are in Your Name
If you’re not sure about which name the loan you’re making payments on is under, check with your bank or lender. You can check with your spouse or parents to see if they believe that the account is affecting their credit score. However, the bank or lender will be able to let you know for sure. You might know if you’re an authorized user on the account, which means you can usually make payments and have limited access to account information, but that doesn’t necessarily mean the account is in your name or that the effects of the account benefit you.
There are some instances in which you can have a loan transferred into your name instead of a parent or spouse. However, this can get a little tricky from time to time. In some cases, the loan name might be able to be transferred over cleanly. Although, you will still have to go through a credit check, so check with your bank or lender to see what their process looks like. Since you have to go through a credit check, you might not get the exact same deal that your parent or spouse was able to secure. Your bank or lender might adjust interest or how long you have to pay the loan back, depending on your overall credit score.
Some institutions will just simply not allow that kind of transfer. This means your loved one might have to “sell” you their loan through a refinance. That means you take out a new loan in your name, to pay off the old loan under someone else’s name. For example, if you want your spouse’s car loan to be in your name, you might have to have your spouse “sell” you the loan as part of a refinancing in order to take it over. This could mean that you have to go through an entirely new lender and again, you might have to settle on a new term for the loan and rate of interest.
When to Put Debt in Your Name
When you’re younger, putting loans or other bills in your parent’s name seems natural. However, as you get older, building a solid credit score becomes extremely important. If all of your debts are in another person’s name, your credit history might have little to nothing on it, which does not mean good things for your credit score.
If you want to start building up your own credit, now is the time to think about only starting loans or lines of credit in your own name and/or transferring old accounts into your possession. Almost everyone pays bills, but that doesn’t mean it is contributing to your financial health. Your hard work paying off all of your debt should be reported on your own credit history.
You may also have accounts that were started in your spouse’s name, which can be tricky. Accounts in which you are a co-signer will affect your credit score, but accounts that only have their name will not affect you whatsoever. So, if you’re trying to build up your own credit score (which is a good idea for both parties to have a solid score) it might be a good idea to start any new accounts in your name or both of your names together.
Essentially, the answer to this question is, “You should start putting loans in your name right now.” There is no better time than now to start building up your credit history. Adding positive transactions to your credit history will help build up credit for those who have a slim credit report and they can also help to fix any credit mistakes that you may have experienced in the past.
It’s never too late to start building up your credit. Starting small and becoming a co-signer or opening up a new credit card in your name will do wonders for your credit. Especially if you plan on buying a home with your spouse in the future, having two good credit scores is much better than just one (you could be approved for a much larger loan). However, even if you never plan on purchasing a home, you can never get to that excellent credit score if you don’t start working on yours right now.
How else does your credit history affect your credit score? Find out at our credit score learning center. Is there debt on your credit report you are not responsible for? Visit our dispute letter template resource center for more information on removing the entry.
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Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.
This post was updated February 28, 2019. It was originally published September 16, 2017.