How Does Marrying Someone With Bad Credit Affect My Credit?
The short answer to the question if marrying someone with bad credit affects your credit is no, it doesn’t. Your score remains yours and your spouse’s will also remain his or her own, even if it’s a poor credit score.
How My Spouse’s Bad Credit Affects My Own Credit?
However, there is a longer answer that can be more complicated since your spouse’s credit does affect finances in different ways.
How Does a Credit Score Work?
When marrying someone with bad credit, it helps to know how a credit score works. It’s an assessment of your creditworthiness based on items that are in your credit report. The credit report includes things such as your track record for repaying debt, your borrowing history, and if you pay your bills on time. Having a good credit score is not only important for borrowing money but it’s also important since a prospective landlord or employer might look at it before you are allowed to rent an apartment or be given a job.
It is used to show how reliable you are in a number of different situations. You don’t have a credit history right away until you get a credit card and even after this, it does take some time to build up. By the time you get married, you may already have a built-up credit history that you want to protect.
What Happens to My Credit Report When I Get Married?
Before getting married you may ask yourself “What will happen with my credit report?”.Even as a married couple, you and your spouse do continue to have a separate credit history. Your credit history is tied to your own Social Security Number. Marriage doesn’t change this and there isn’t a couple’s credit report. Credit bureaus don’t even record your marital status.
Share Information With Each Other
However, marriage can change credit going forward, especially if you take on new debt together, open joint accounts, or apply for loans jointly. This is why it’s important, before you tie the knot as well as afterward, to go over financial records, including savings, investments, debt, and salaries. You also want to review your credit reports. While marriage may not have a direct impact on your credit, you want to have a sense of how your spouse is going to handle money as you start your journey through marriage together.
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Does Changing Your Name Impact Your Credit?
If you change your last name or even hyphenate your name, it also doesn't affect your credit and you won’t have to notify credit bureaus of your name change. You will need to notify existing creditors and the Social Security Administration about the name change. Then the bureaus will update your name on your credit reports once creditors start reporting activity under your new name.
When this happens, your old name will be added as a name that you were formerly known as. After a few months, you can check your credit reports. If your name hasn’t been updated on your credit file or has been done incorrectly then you will be able to file a dispute to get it corrected.
What Happens When You Take Out a Joint Loan?
If you are going to take on a joint loan with your spouse, such as for a car or a house, then your lender is going to check both of your credit reports and histories when deciding whether or not they will give you the loan. If your spouse has bad credit and you have enough income in order to handle the payments yourself then you may want to consider taking out the loan in your name only.
If you don’t then you may not be able to borrow as much or you may get a higher interest rate since both of your credit histories will matter. In a case like this, it may not be that two scores are better than one since the lower score will affect both of you. If you do end up getting a joint loan then remember that the lender will be required to report the loan and payment history in both of your names. For example, if you have a joint car loan and you miss payments then those are going to show up on both of your credit histories.
There are various lenders out there, but we can help you narrow down your choice, based on your own finances. Below is a form you need to fill out, and we will connect you with a suitable lender.
Should You and Your Spouse Merge Credit Accounts?
Once you have discussed credit histories with your new spouse then you will both need to decide whether it makes sense to merge your financial accounts. Many couples choose to do so since consolidating accounts can make it easier to prepare for joint tax returns and help simplify the record-keeping process. Whether or not you and your spouse decide to combine finances, there are some things to keep in mind. Both of you are going to be responsible for any debt that is incurred in joint credit accounts. Regardless of who actually incurs the debt, missed payments on joint accounts are going to affect both of your reports. If either spouse missed a payment on an individual account, this can also influence the ability to borrow jointly in the future.
If you do decide to consolidate your accounts then it also helps to keep at least one account in your own name in the event of an emergency. While no one wants to think about this when planning a forever with someone, keeping an individual account can be useful in the event of divorce since it can be used as a starting point for rebuilding your credit.
Helping a Spouse with Bad Credit
If you are marrying someone with bad credit then it could be in your best interest to help him or her with their credit so that you are able to get joint loans in the future. Until your spouse works on his or her credit, you may want to keep accounts separate until the credit improves. There are some steps that you can take together:
- Review Your Credit Reports Together
First, start to get a handle on the problem by getting a free copy of your credit reports so you can review them together and find out where they stand. Discuss what led to the problem, whether it's not planning for emergencies, an unexpected layoff, or overspending. During this time, it’s important to not be judgmental and be open.
- Make a Plan Together
Once you know where the credit stands you can work on fixing the damage. Work together to decide on a plan that is going to address the problems. Start with a list of collection amounts and accounts and pay them off one at a time. If there are late payments that are causing issues to the credit score then make sure they are paid on time going forward. Work to reduce credit card balances so that they are less than 30% of the credit line in order to lower the credit utilization score.
- Keep Track of Your Progress
Once you start doing the work you also want to track progress. Get a credit report every few months so that you can review the progress you made and make changes as necessary.
Negative information on a credit report won’t haunt you forever. By law, credit bureaus need to remove negative information after a certain period of time. This will depend on what type of negative information is on there. For example, late payments will usually stay on for about seven years. Bankruptcies will range from seven to 10 years, depending on the type of bankruptcy. Depending on the credit scoring system, the older the negative information on the credit report is, the less of an impact it will have on a credit score. If you both make sure to pay the bills on time then you and your spouse can both achieve great credit histories in the future.
Do You Take on Spouse’s Debt When You Get Married?
If marrying someone with bad credit doesn’t affect your score if you keep accounts separate then what about debt? In most states, you won’t be held legally responsible for any debt and bills that are racked up before you get married. However, it will all depend on the state you live in and the state will also have rules for how much debt you will be liable for after you say your wedding vows.
States Operating On Common Law
According to the IRS, most states will operate on common law, which means that if a married couple uses a shared credit card or opens a joint account then both of them are responsible for paying back the debt. If only one person puts their name on the account, such as a loan for a car, then only that person is responsible for the loan. This means that a bill collector won’t come after you if your spouse doesn’t pay that loan on the car. In common law states, there will be some exceptions for necessary joint household expenses. This includes things like housing, food, or childcare, even if you and your spouse never created a joint account.
Joint liability will go for both new and existing credit lines and shared accounts. If you are signed up as a joint holder on your spouse’s existing credit card then you are held liable for everything charged to the account, even if was charged before you got married. Shared bank accounts also work the same way. Once you both sign on then the balance is a shared asset, regardless of when money was deposited and who deposited it. This may work against you if a collector comes after your spouse’s debt and wants the money in your shared account.
Community Property States
In nine states that are community property states, the laws work differently. This is where all debt and property is shared once a couple is married. These states are Arizona, California, Idaho, Nevada, New Mexico, Washington, Louisiana, Wisconsin, and Texas. In these states, you aren’t responsible for most of your spouse’s debt that happens before the marriage. The IRS does say that debt taken on by either spouse after your wedding is then automatically seen as shared debt. This means that even if your spouse opens up a credit line in his or her name only, you could be liable for the debt. Creditors are allowed to go after joint assets to pay for one individual’s debt.
What About Taxes?
Rules will vary when it comes to taxes. It’s possible the government can put a lien on any part of the community property, such as a home. There are some exceptions for separate debt, such as child support from previous relationships. In this case, creditors are only able to go after the person who is actually responsible for the debt.
If you are worried about debt and marriage then there are some options. You can sign a legal agreement that says all income and debts are treated separately. This can be done either as a prenuptial or postnuptial agreement and is usually used when one spouse opens up his or her own business. Some lenders may agree to not go after your spouse for the debt you incur. This is rare and it will need to be in your written contract.
Financial Tips for after Marriage
Even if you aren’t marrying someone with bad credit, there are some financial tips you should think about after getting married, especially if you are older and have assets and financial habits in place.
Merging Finances
Depending on when you get married, you may already be accustomed to your own personal habits and money management. This can make it harder to merge finances, especially if one of you is thriftier while one is a spender. Smart planning can help you ease the transition of combining finances. There are a lot of issues to discuss and you want to reach an agreement about sharing paychecks, savings, and bills. You also want to figure out what level of savings you should have as a couple, talk about where you plan to live, and how children from previous relationships will play into the marriage.
Updating Tax Information
If you are changing your name then you need to make sure names match on tax returns. If not, tax refunds could be delayed. You will also need to decide if it makes sense to file a joint return or with the status of married filing separately.
Estate Planning
Estate planning with your spouse is important. The organization of property is necessary to see that your family’s financial goals and needs are met after you die. State laws regarding estates vary so you will need to meet with an expert about the laws in your area. You should also update respective powers of attorney and may want to change beneficiaries on wills, investment funds, retirement accounts, life insurance policies, and other financial accounts.
Prenups and Postnups
Prenups and postnups can be used as a financial tool in marriage. Both are similar, except a prenup happens before the wedding and a postnup happens after the wedding.
These documents aren’t for everyone. Young couples that are getting married with few or no assets don’t usually have the need for this contract. One exception can be if one or even both of the spouses expects distribution for a family trust or large inheritance. However, these documents could be useful if one of you is entering the marriage with significant assets, such as a large estate. Prenups can also protect any assets or income you earn during the marriage. Without a prenup, you may be required to pay alimony to an ex-spouse. Prenups can allow you to predetermine alimony or even eliminate it altogether. One thing that isn’t handled by a prenup or postnup is anything dealing with existing or future children.
Many couples choose a postnup since they run out of time to sign a prenup. Others just want to put the process off until after the wedding since they find the whole process awkward. Usually, couples that have been married for years will decide on a postnup. In some cases, the couple may be struggling with the marriage and give it one try and use the postnup as an ultimatum. In other situations, one of the spouses may have just received a large gift or inheritance and want to claim it as their own.
Finally,
Marriage can be a financial decision that you should take seriously. If your spouse has a bad credit score then a joint loan could mean that you get denied or you pay a higher interest rate. Depending on where you live, you could also be responsible for paying your spouse’s debt. Talk to your partner about finances before you get married. You can also check with a legal expert to see how laws in your state affect personal liabilities and what can be done to protect yourself.