Common Myths About Marriage & Credit

We’ve all heard the adage that “opposites attract” and most of us know some couples who fit this description.

 

The good news: there are many happy and functional couples who fall into this category, but it can take extra effort to maintain a successful relationship when there are serious differences in attitudes and behaviors between two people.  This is especially true when it comes to managing finances and credit, and doubly so when you enter the legally binding contract of marriage   In fact, financial incompatibility is frequently identified as a top reason for divorce by relationship experts.

 

Valentine’s Day is traditionally a time for celebrating love and romance through gifts of flowers or chocolate.  While the offer to obtain and discuss each other’s FICO Score over candle light doesn’t seem very romantic, it does surface an opportunity to highlight some commonly misunderstood information regarding marriage and credit. Whether you’re thinking of proposing this Valentine’s Day, or you’ve already taken the plunge, it’s important to understand exactly how marriage will impact your credit, both in the short term and long term.

 

Here are some of the most common myths about marriage and credit:

 

 

Your credit report is merged with your spouse’s when you get married

This is not true.  A person’s credit report is stored, updated and accessed by lenders on an individual basis. Any credit you have in your name only (whether opened before or after your marriage) and the associated credit performance will only show up on your credit report.  Joint credit, when you apply with your spouse, will be reported and updated on both of your credit reports.

 

 

Your spouse’s bad credit will hurt your credit rating

Many people incorrectly assume that negative information on your spouse’s credit report, such as a previous bankruptcy, will affect your credit and FICO score.  This is a fallacy.  Negative credit information should only surface on a person’s credit report when s/he is legally responsible for the debt.

 

Important to understand, if you are a co-applicant or co-signer on a loan with your spouse (or anyone else for that matter) and there are missed payments on the credit obligation, that information will surface on your credit report when reported by the lender and will likely have a negative impact on your FICO Score.  The same can hold true when placing a spouse as an authorized user on a credit card – if your spouse forgets to make a payment, you’ll both feel an impact on your individual FICO Scores

 

Be sure to read the fine print on the application form to understand if you are legally responsible for the loan.

 

 

Lenders require you to apply for new credit as a couple once you are married

I have never heard of a lender requiring this.  Lenders will accept your individual application for credit even when you are married.

 

There are situations where the application for a loan (such as for a mortgage) can be viewed as more robust if both spouses are included – especially when considering household income vs a single applicant’s income used to calculate a debt to income ratio.  Note, however, that this requires both parties to be on the application and that means a credit report and score will be accessed on both applicants and you will both be legally contracted for the loan if approved.

 

 

If you divorce, you are no longer responsible for joint credit accounts

Unfortunately, this is all too often assumed to be true.  If you’ve entered into a joint credit agreement, you’re both on the hook. A divorce does not dissolve a joint credit contract, and all parties remain responsible to make payments as agreed or face the consequences of having negative information being reported to their credit bureau report.  The most prudent advice when it comes to divorce is for all joint credit obligations to be paid in full and officially closed as part of the divorce process.

 

I interact with a lot of people regarding their credit and many half-jokingly wished they had known their spouse’s FICO score before saying “I do.”  While that may not be practical, open communication regarding finances, credit and wealth management is an important factor in building a strong relationship and should take place before and after heading down the aisle.

 

 

Tom Quinn is the Vice President of Business Development for myFICO, and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives. 

 

Comments

  1. Frederick Freeman says:

    Who is responsible for the individual credit accounts of a deceased spouse?

  2. If I am not mistaken it is part of estate. The surviving spouse wouldn’t have to pay personally but if there were funds received per estate it could be expected to be paid from proceeds. Again not a legal expert at all just what I have seen in banking.

  3. Frederick – good question! I would love to know that answer!

  4. the representive for his estate if he has none it will go to probate if the estate is over the amount allowed exempt by law. If there is any money left in the estate the bills are to paid. If the bills are contractual and your name is on them may be responsible. you are not require to pay them if your name is not on them. . This I know from experience. However if you are in a community property state this may not apply I would research your State laws for this question.

  5. If the credit account was in your spouse’s name only (not a joint account), the debt becomes the responsibility of the estate. People can’t inherent debt for which they are not contractually liable. If you are a co-signer or co-applicant on the credit, you are likely responsible for the amount owed.

    When a person passes away, his/her estate is responsible for paying off the balance owed on his/her outstanding debts. If the estate goes through probate, the executor will look at the assets and debts and determine in what order bills should be paid. A lender will typically write-off the amount owed if there are insufficient funds in the estate to pay off the debt owed to them.

    Estate and probate rules can be complicated and may differ by State so you may want to interact with a legal professional regarding your particular situation.

    This explanation should not be considered legal advice.

  6. David Bechtold says:

    This is very interesting. I recently got married. My wife has bad credit and mine is a little better so I am going to “au” her on my cards to help her.

  7. Stipulated judgment says (He) the Petitioner is responsible for all debts and taxes.
    On the divorce decree it states the court orders that all debt and taxes incurred during the marriage is the responsibility of the Petitioner again which is him, my X, he agreed that he would be responsible for all debt. Well, now one month after the divorce is final we have a huge tax lien against both of us since we filed Joint for all those years and back taxes he was in charge of filing or NOT..my mistake by trusting him. But the question is: Will the IRS except the court order that he is responsible for all debts and taxes ? along with filing an innocent spouse claim.

  8. What a great post!! Thank you. Reading this post really did clear up some confusion that I had with the whole getting married/credit thing. I honestly thought That it would be a better idea to wait to get married because I absolutely do not want to harm my spouse’s credit in any way, shape or form. This is actually what I was told by more than one person. Anyway, thank you again for clearing this up. I did also recently find some good information relating to this topic when I Googled the credit locker university. This was useful as well.

  9. Thank you for this post it is really good post which is giving us the idea that what should we do it like purpose you have started once again thanks.

  10. My spouse did an equifax dispute and got rid of some negative stuff. Now I love them 15% more than I did before because their score went up. J/K, but stable finances do tend to help the stress levels in any relationship, especially marriage.

  11. One thing that this article promoted me to do was check my credit report for negative information that I could dispute and possibly get removed. I Googled ‘credit software’ and found that I could do the work myself, without the expense of a professional.

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