Congratulations! You and your new significant other determined you are physically and mentally compatible and you went ahead and tied the knot. But did you spend the time to assess your financial compatibility prior to the big event? After tying the knot, did you discover that your significant other has a history of bad credit? What do you do now? Below you will learn more about what credit is and how to deal with your spouse's credit issues.
Why Good Credit Is Important
A credit score is an overall assessment of how financially reliable or unreliable you are based on your credit report. When you are applying for a new loan or line of credit, whether it be a personal loan, auto loan, or even a credit card, it is reported to one of three national credit bureaus and added to your credit report. These credit bureaus also track your ability to repay debts both on time and in full.
Having good credit comes into play with many aspects of life. If you wish to purchase a new home or vehicle, a lender will assess your credit report to determine if you are a reliable borrower or not. Also, when doing things such as apartment hunting, the prospective landlord may run a credit check to determine if you can pay your bills on time. A future employer may even run a credit check to determine if you are dependable.
Will My Credit Be Affected?
Simply enough, no.
When two people are married, their previous credit history remains their own. Your spouse's credit score does not directly affect your credit score and vice versa. It does, however, affect your future finances and debts and credit purchases you take on jointly.
So, any debts you take on jointly will appear on both you and your spouse's credit reports. If you and your spouse are applying for a loan together, especially when purchasing a home, and one of you has a low credit score while the other has a much higher score, it may be beneficial to apply with only one of you instead of both. When applying with a spouse with bad credit, you may not be approved for the amount desired or might end up paying a much higher interest rate.
Identify the Issues
It is not uncommon for couples to avoid the discussion of finances, especially before they are married. If you tie the knot and have yet to have a discussion on finances, now is the time to do so. If you or your spouse have credit issues, it is imperative to keep an open mind and try not to judge their past choices. It is essential to understand why your spouse has credit problems to help them identify and attack the source.
To figure out where you stand, obtain a copy of both of your credit reports. Take a thorough look over each credit report to determine what led to either yours or your spouse's credit issues. Was it overspending, the loss of a job, or an emergency? Getting to the root of the cause will help you immensely along the way.
Plan of Attack
To repair damages, you must first learn the ins and outs of what caused them. When reviewing credit reports, make a list of all collections accounts available and the payoff amount for each. Work to pay off each of these debts, either in small amounts of each consecutively or one at a time if it is easier that way.
Reduce credit card balances to 30% or less of the total credit limit. Keeping credit card balances to 30% or less of the card's total limit shows lenders that you can maintain a healthy balance between borrowing and paying off debts.
In repairing the damages done to your credit report, one of the options you may want to pursue is to seek out help from a professional credit repair company. These experts spend every day helping others just like you and your spouse, maybe even those who are worse off. A credit repair specialist can make recommendations and help you establish a plan to get you in good standing with credit bureaus.
Below are a few tips to aiding in the repair of your spouse's bad credit:
- Establish a household budget and stick to it.
- Build an emergency fund.
- Create a plan to pay off all debts.
- Share a credit card account, or make your spouse an authorized user on your credit card. Use your good credit to boost theirs.
- Open a secure credit card. This line of credit is great for those with bad credit or no credit. A cash deposit of equal or less value than the credit limit available needs to be issued.
Do not let a significant other's credit history scare you off. Unless the two of you apply for a joint line of credit, your credit will not be affected in any way. Help your spouse build their credit so the two of you can enjoy all that life has to offer.