by Cathy Pareto
Credit obligations are a serious matter, and we have already established the important role your credit score plays in your life. As we've discussed, you may want to think twice before entering into any joint credit obligations with a friend or relative. And, combining marriage and credit can be equally challenging.
Just because you get married does not mean that you suddenly share your spouse's credit history. You have to actually apply jointly for credit in order to be listed as joint debtors. With the exception of any joint debts, spouses will continue to have separate credit histories. So if your husband has poor credit but you have exemplary credit, his credit will not negatively impact your history. The two histories are completely independent despite the fact that you are married. Joint debts, however, are reported on both individuals' credit reports no matter who is actually making the payments or using the accounts.
Some couples opt to keep their credit separate by maintaining individual credit accounts. That is a little harder to accomplish when buying a home together, however, because the asset is usually acquired using the income and credit history of both spouses. If one spouse has good credit and the other has lousy credit, it's worth considering how best to apply for a mortgage (or any other type of loan or credit), since the spouse with the poor history may drag down the applicant with good history. This can mean higher borrowing rates and therefore greater debt costs for the couple.
While some couples choose to commingle their debts and assets, others find it more efficient and less adversarial to keep their finances separate. However, some states' laws can make it difficult for married couples to keep their finances separate. Community property states like
It is well understood how much stress money matters can place on a marriage and it is no secret that the number one issue that couples fight over is money. Couples would be well advised to consider having open and honest discussions about money throughout their relationship, especially before they get married. All of the financial cards, good and bad, should be laid on the table before tying the knot. The worst time to be surprised about your partner's financial missteps is after the fact (for example, in the midst of buying a new home together). (Read more about managing the financial challenges faced by couples in Relationship Money Matters, Combining Credit For A Happy Financial-Ever-After and Say "I Do" To Financial Compatibility.)
Credit and Divorce
If you find yourself on the path to divorce, be aware of the credit issues prevalent in divorce situations. Sometimes one spouse decides to stop paying jointly owned debts during the separation or divorce process. This decision can considerably damage both spouses' credit and continue to haunt them for several years.
Many legal or financial professionals specializing in divorce suggest that each spouse obtain a credit report before the divorce begins. Not only will this help the couple assess what debts the couple has jointly and separately, but it can also give the couple the ability to compare its scores and any erroneous reporting before and after the divorce. Because divorce can be a lengthy and often messy process, both spouses should consider closing any joint credit and bank accounts. While you will still be responsible for paying off the debt of any closed credit accounts, no further charges or withdrawals will be possible.
For more, read Get Through Divorce With Your Finances Intact.
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