I had a casual chat with a friend recently, and she mentioned that before her and hubby got married they had an open conversation about their finances. In fact, this was well before he even proposed. They agreed that, should they decide to get married in the near future – they would be transparent about the state of their finances. They showed each their credit reports, how impressive is this?!
Getting married changes one’s life in many ways. While your credit score won’t necessarily suddenly merge – its is critically important to have honest and open conversations about finances before saying “I do”.
When exactly does your spouse’s credit rating affect yours?
According to Transunion, your credit scores don’t suddenly merge. Even if your spouse has a negative credit history, it won’t initially affect your credit score in any way.
The changes only come after you’ve got married, and you decide to jointly apply for credit products together like a loan or a credit card. Then, credit providers will look at both of your incomes, which may make it easier to apply for loans (For example a Home loan). They will also look at both of your credit scores – and if one of you has a bad credit history, there’s a chance your application won’t be approved. Or they may charge a higher interest rate.
What do you do when your spouse has a poor credit rating?
If you and your spouse have different credit scores, this may affect any joint applications for credit. In this case, you will have a few decisions to make around how you want to handle applying for credit and loans. Will the spouse with better credit score make the applications? Will you apply jointly and accept higher interest rates to improve the other spouse’s score? These are questions you have to ask, depending on your financial situation and priorities.
Does my marriage contract affect my credit rating?
Your marriage contract doesn’t affect your credit rating, or how you are assessed for a loan. It affects who is responsible for the debt. So if you’re married in community of property, it means you and your partner are equally and fully responsible for any debts incurred while you are married. In other words, if you can’t pay your debts, your creditors can legally recover the money from your spouse. If you have an ante-nuptial contract, only the primary account holder is legally responsible for paying any debts.
If we have joint credit, how is this recorded in a credit bureau?
A joint account is reflected on the credit records of both you and your spouse. The following information is kept on the joint account until it is settled: the type of account; the people responsible for the debt; your opening balance; your current balance; the number of instalments, instalment amount and repayment frequency; months in arrears and overdue balance.
How do I take my name off a loan if our relationship ends?
Once the account is opened, it’s extremely difficult to remove a co-signer off the loan. The person keeping the account will need to show the bank that they are able to take over the loan, or close it, to end the co-signing agreement. Not even a divorce decree will relieve you of your liability to the creditor, unless the creditor themselves releases you from that account.
So what can you can to protect yourself?
If you have a joint loan, or have co-signed on a loan, check your credit reports from TransUnion and other credit bureaus regularly to see how the other person is maintaining the account. That way, you can address any potential problems early to avoid an issue on your own credit rating down the line.
Moral of the story; Have a clear understanding of what you are getting yourself into before committing to spend the rest of your life with someone. Should you decide on marriage, that would be a great opportunity to review your current outstanding debt and formulate a plan on how the debt will be dealt with.
A good money management tip is to first pay off debt with high interest rates, for example retail store credit or microloans, or to consolidate this type of debt into a single credit product with a lower interest rate.
You may also want to read this post I shared regarding what is considered good and bad debt.
Until next time,
love and light.
Disclaimer: The article is provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as financial advice. An expert should be consulted for advice based on the facts and circumstances of each transaction/case.
The contributor (Kim Nokwaza) shall not be liable for any loss or damages suffered by anyone who relies on or acts upon the information contained in this piece.