Bad Credit? Getting Married Can Fix That
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- By Christina Lavingia
- April 6, 2014
When two people get married, many aspects of their lives become shared. For better or for worse, that includes each other’s finances. The merging of bank accounts, sharing of living spaces and combining of incomes might all seem financially favorable, but if your spouse is entering the marriage with a poor credit score, that burden will become yours, as well.
According to a report published in the Forum for Family and Consumer Issues, finances were found to be the leading cause of marital stress, with 39 percent of respondents listing it as their biggest issue and 54 percent as their second.
Furthermore, a Utah State University study found that couples who disagreed about finances once a week were 30 percent more likely to end their marriages than couples who disagreed once a month.
Fiscal issues can put a damper on newlywed bliss — they can even threaten the health of a marriage. However, marriage can also be an opportunity to establish or strengthen your credit by being strategic with your finances and working as a team to build your collective creditworthiness.
3 Ways To Strengthen Your Spouse’s Credit
1. Make Your Spouse a Joint Account Holder
Homeownership is a natural milestone to reach when a couple ties the knot. Whether its a house or condo, newlyweds usually look to combine their households after saying “I do,” and require a mortgage to do so. However, your impeccable financial history won’t matter if your spouse has a poor credit history — or lacks one entirely.
Lenders consider the credit history of both applicants when approving a joint loan, whether it be for a car or home. If one spouse has a poor credit history, it can affect the loan amount the couple qualifies for and the interest rate offered; it can even prevent them from obtaining a loan at all. These limitations could prevent a couple from financing a more expensive home or vehicle, or could cost them significantly more money over the life of a loan if they only qualify for a high interest rate.
When two people marry, their credit history does not merge or blend together; both maintain their individually credit histories independently. However, if one spouse has no credit history to speak of, it doesn’t bode well for a joint loan, as the lender has no metric to gauge that partner’s creditworthiness.
Rather than setting your spouse up as an authorized user on your accounts to help him build a credit history, which gives him access to your credit with no responsibility for the repayment of debt, name him a joint account holder to help him build credit independently, as joint account holders share both credit and full responsibility for the debt incurred.This will help your spouse qualify for credit cards and accounts on his own in the future, and can help you if you need to seek a loan together.
When naming your spouse as a joint account holder, make sure you trust him with your accounts, as any default caused by excessive credit card spending or poor account management will impact both of your credit scores. Additionally, it’s more difficult to remove a joint account holder than an authorized user from your accounts.
2. Transfer Your Spouse’s Debt to Your Low-Interest Credit Card
If your partner is entering the marriage saddled with credit card debt, you could capitalize on your strong credit history and pay down the debt more affordably by transferring your spouse’s debt to a low-interest credit card. If you’re able to qualify for a significantly lower interest rate, or even better — a 0% APR introductory rate — you could save a significant amount of cash.
Balance transfer credit cards allow you to consolidate credit card debt onto one card. If you either have the money to help your spouse pay down his credit card debt, or wish to open a credit card to transfer his balance to your name, doing so could help you achieve your long-term financial goals as a couple. The spouse applying for a balance transfer usually must have a high FICO score in the 700 range or better to qualify.
However, it’s important to keep in mind any transfer fees associated with this move to determine if it’s the right decision for you. Additionally, it’s helpful to set up a plan to pay off the debt and see if you can accomplish it within the allotted promotional period associated with the credit card.
A BankAmericard Visa card, for example, offers a 0% introductory APR for 15 billing cycles on all purchases and balance transfers made in the first 60 days. When compared to the 20% APR your spouse might be qualifying for, storing $5,000 in debt and paying it off gradually through this card would save you $1,250 in interest. Chase Bank’s Slate, American Express’ Blue Cash Everyday, Citibank’s Simplicity and the Discover it card are just a handful of other credit cards offering 0% APR for more than a year on balance transfers and purchases.
3. Help Pay Off Your Spouse’s Loans
If you live in a community property state — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin — you might be liable for your spouse’s debt if it was incurred during your marriage, even if you’re not a cosigner or joint account holder. Working as a team to tackle debt is advantageous in the long run, in terms of the interest rates you will qualify for together and your increased desirability as a loan applicant.
Rather than letting your spouse default on existing debts, like student or auto loans that might be threatening his credit, helping your spouse remain solvent will lay the foundation for your financial stability as a couple.
Although some companies, like Sallie Mae, no longer offer student loan consolidation, more than 20 types of federal loans qualify for the Federal Direct Consolidation program. Furthermore, when applying to consolidate your federal loans, you’re able to select an income-contingent payment that is realistic to your financial situation.
Your debt-to-income ratio as a couple is a major consideration for lenders. Helping your spouse tackle his debt, while generous and requiring a lot of investment initially, could save you from more costs — in the form of higher interest rates — and could lessen your financial concerns in the future.
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