What to do When your Spouse has Bad Credit
Household finances can be a source of contention in a marriage. When you are trying to make plans or even set goals, it can be concerning if you or your spouse has bad credit. In order to combat the issues that come with one-sided poor credit within a marriage, it’s important to be open and transparent about it. Fortunately, poor credit is not irreversible. It’s valuable to know how credit history affects the both of you, to make a plan to repair credit, and to take precautions so that you don’t run into this problem again in the future.
How Separate Credit Histories Affect One Another
It’s a common misconception that when you get married, your spouse’s credit becomes yours. In reality, you and your significant other will still have your own personal credit score independent of each other. However, your spouse’s credit may affect your ability to qualify for large loans, or the terms of the loans you do qualify for. Home loans, car loans, or other lines of credit you open together within your marriage may take a hit in terms of eligibility and interest. Will your credit be affected by your spouse? Perhaps indirectly, but not initially; there is no “joint” credit score once you are married, even if you are joint users on a single credit card.
However, you are a package deal in a lot of ways. You may think a way around this problem is to apply for loans individually. You can do this, technically, but you’re putting yourself at risk in case of divorce. A judge may name you solely liable for any debt in your marriage that is only under one name. If a judge does demand your ex-spouse pay for a portion, it will affect your credit score and not theirs if they don’t. You’ll have to decide together how to handle these situations. Perhaps you wait for your credit to improve, you decide to ask a parent to cosign, or you apply for a loan independently, there are other options depending on what each of you is most comfortable with.
Making a Plan
Since it’s clear that your spouse’s poor credit can affect you, just not your credit score, it’s important to make a plan to improve your spouse’s credit score. First, find the root of their credit score problems. The main causes for poor credit include late payments, defaulting on payments, payments going to collections, defaulting on a loan, bankruptcy, or foreclosure. Why was your spouse missing payments and spending so much money? If it’s a spending issue, focus on finding and fixing their bad spending habits. Have an open and honest discussion about their finances and how they felt they went wrong and work to correct them. The difference between positive and negative credit might not have to do with financial missteps, but might have to do with a large-scale financial emergency. Either way, it’s important to discuss in order to remedy.
Once you’ve discovered the cause of their poor credit, make a plan to correct it. If you’re turned down for a loan because your spouse has poor credit, sometimes all it takes is a conversation with a loan officer and a plan for improving a credit score to prove your eligibility for a loan. Your plan should include:
- Creating a dual budget that blends your finances together
- Making payments on time
- Making payment plans to pay off all existing debt
- Utilizing a credit card responsibly
- Checking back consistently
Building back credit is not a fast process, but it’ll happen with good financial habits and patience. In the meantime, you may have to live a little more frugally and wait to get a great loan – but the sacrifice will pay off in the end. As long as you’re being proactive about the next steps toward improving credit, you’re on the right track.
Along with making a plan to improve credit comes the need to take precautions so that your credit—or your spouse’s credit—doesn’t take another dive. Having an awareness of your finances and the dangers involved with defaulting on a loan or missing payments will, in itself, help to improve overall financial health. Take precautions so that you aren’t completely drowning in case of a financial emergency by always saving money in an emergency fund. Talk to your banker about how to improve credit and what you should avoid doing. Knowing what not to do is just as important as knowing what to do.
- Don’t open too many new accounts; the average age of your account is important in issuing a credit score
- Don’t close too many accounts; this erases long-term accounts and increases your debt to credit ratio
- Don’t sign up for a lot of incentive programs; too many requests for credit info will ding your credit score
- Don’t use your credit too much; credit cards shouldn’t fund daily expenses
You want to have enough history for credit reporting agencies to get an idea of your financial habits without having so many accounts that it has a negative effect on your overall credit health. Having a few loans, a few credit cards, and paying on them religiously is the way to keep your credit in a good place. Just take precautions so that you don’t run into overspending habits or a sudden loss in funds that causes an inability to pay your bills.
You and your spouse have something in common: your love for each other. If your credit score doesn’t have a ton in common, it’s not the end of the world; it’s just the beginning of a plan to improve yourselves. Long-term financial planning is key in a marriage where your assets will be blended, so taking action and improving upon your credit score will be a valuable step in that journey.
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Chelsy is a writer from Montana who now lives in Boise, Idaho. She graduated with her journalism degree from the University of Montana in 2012. She enjoys talk radio, cold coffee, and playing Frisbee with her dog, Titan. Follow Chelsy on Twitter @Chelsy5
This post was updated June 22, 2017. It was originally published May 13, 2017.