December 8, 2020
Is Your Spouse’s Credit Score Bad? How Will It Affect Both of You?
By : Ellie Brown
After you get hitched, everything merges into one unit, and finances are no exception. Even though you will be solely accountable for the money you earn, you must share some goals and make a combined effort to achieve them.
Although you share everything from feeling to money, credit core cannot combine. If your partner’s credit score is poor, it will affect their borrowing capacity for sure, but does that mean it will not affect yours? The devil is in the detail.
Why should you have a good credit score?
First of all, you need to know that your credit score is an indicator of your financial condition, and it cannot affect others’ borrowing power. If your spouse has a good credit rating, they will naturally be able to qualify for a loan at affordable interest rates, and if their credit score is not up to snuff, they will likely be turned down or qualify for a loan at high-interest rates.
However, this scenario fits in the picture when your spouse has to apply for a loan alone. For instance, if your spouse’s credit history is less than stellar, they will have only a chance of applying for bad credit loans, but what if you are seeking to take out a loan jointly. There are many scenarios when you likely feel borrowing money jointly, for instance, mortgage or auto loan.
Since you are borrowing money with your partner, lenders will look over credit score of both of you. Although your partner’s credit score will not affect yours, your good credit score may not be enough to qualify for the loan at low-interest rates. This is why it is essential to have a good credit score. Here is what you can do:
- Check your credit report and find out if that adds in an account that you do not recognize. Sometimes, identity theft can be the cause of poor credit rating. Do not shirk requesting credit reference agencies for a copy of your credit file.
- If you have recently taken on debt, make sure that you pay it off timely. However, note that if you are to pay a loan in a lump sum, it will not boost your credit score, but missed repayments can pull it down. Instalment loans can help you have your credit score up because you will be paying down over an extended period.
- Keep your debt-to-income ratio as low as possible. Try to keep it up to 30%. If it is beyond that, a lender will be sceptical about your repaying capacity and assume that you generally rely on debt to make ends meet.
- Do not close too many old accounts because that shows you have well managed them. If you close all of them, it will lower down the amount of credit available to you, and as a result, your debt-to-income ratio will immediately shoot up.
- You should not sign up for multiple accounts in little time. Each time lenders will search, and it will leave hard footprints on your credit report. Each search footprint will pull 5 points. It is advisable that you should have at least a three-month gap between accounts.
What if your spouse cannot repay?
If you have taken on a joint loan, you and your partner will agree upon paying the debt in half. You are joint borrowers, so you two will have to make repayments. However, there are circumstances when your spouse fails to make repayments.
For instance, they are facing redundancy. Because your partner has failed to pay down the debt, now you will be liable for their share. However, it will not affect your credit score.
Since your partner could not make the repayment, they will lose their credit points. It will make it worse for them to apply for a new loan down the road. In joint loans, you will be responsible for making the repayment in full if your spouse fails to pay it off, but it will not affect your credit score. Your credit score will be impacted when you fail to meet your obligations on time.
Now you must have understood your partner’s inability to make repayments will not affect your credit score even if you take out a joint loan. However, in the case of a joint loan, you will be obliged to make the repayment in full.