Marriage - Love and Debt

What happens to your credit when you get married? If your spouse has good credit, does that help yours? If your spouse has bad credit does that negatively impact you? These are questions that I often hear when I am out teaching classes. The answer is pretty straightforward; however there are many things to think about when combining finances with someone whose credit has blemishes.

First, let's put some misconceptions to rest. When you get married, your credit does not become one. It is still separate. The debts that were yours prior to the marriage are still your responsibility and they will not show up on the credit report of your new spouse.

There are only a few ways for you to become responsible for the prior debts of someone else. Those are:

• You pay for that debt on a credit card that is in your name, or
• You finance the other party's debt into a loan in your name, or
• The spouse takes out a loan to consolidate debt and you co-sign for the loan.

Also, when you marry, your credit reports remain separate. If you pull your credit report you will see only accounts that you are responsible for repaying. This may include accounts in which you are a joint (or co-signer) account holder. However, if you apply for a joint account (credit card, car loan, mortgage, etc.) the financial institution will look at both of your credit reports.

Now, let's look at what happens when you get married and one spouse has less than perfect credit. The first hurdle is what to do when you want to purchase a home or a car. The spouse with the negative credit may be left off the loan application (if their income is not necessary to purchase the item), meaning they may also be left off of the title. In the case of a car, it may not be that frustrating, but when it comes to your home, you definitely want to be included on that title and you will be able to afford a more expensive home if the income of both parties is considered. If the application must include both spouses, you may be declined for the loan if one person's credit is too negative.

So what should you do when if one partner has bad credit?

1. Be honest with each other about the financial situation. Keeping it a secret until after you are married only sets the stage for communication and trust issues.
2. Discuss your money management plans. Before you tied the knot, develop a system for paying bills and getting out of debt. Establish how bank accounts will be set-up (joint versus individual or both) and who is going to be primarily responsible for paying the bills (pre and post marriage).
3. Establish shared financial goals. What do the two of you want to achieve? Money for early retirement, a vacation home, college funds? It's important that you work together and that you are willing to make compromises.
4. Find ways for the partner with bad credit to begin establishing positive credit. This may be by opening a secured credit card, or having someone co-sign on a credit application. Time also helps to repair credit. The more time that goes by without adding negative items to your credit report, the better your report will look.

Our credit is important to our financial health in so many ways. It impacts the interest rates we are charged to buy a home or a car, how much of a deposit we will have to pay on utilities or rental properties, our insurance rates, employment opportunities and much more. It is important to protect this valuable asset. If you or your partner needs help managing their debts, call a certified credit counselor today. Start your new life off with a plan for paying your debts and achieving financial freedom.

Published Sep 14, 2011.