Ask John: It's Our Money, Honey!!

Hi John,

Happy New Year. I got engaged over Christmas and one of the things that I learned about my future spouse is that she's in an incredible amount of debt and her credit scores aren't too hot. Mine are very solid, 730+ across the board.  Should I be on the lookout for anything now that my eyes have been opened to her debt? Or is it safe to marry into debt? Will it affect my credit rating as it is affecting her credit rating? Any bits of advice you could give me would be greatly appreciated.

– Marty Hobbs
   Terra Haute, Indiana

Marty is smart to be asking these questions before he gets married. Many people wait until after marriage to deal with the problems that arise from not understanding their future spouse’s finances. Kudos to him for making the effort.

There’s good news and bad news for Marty. The good news is that, even after marriage, credit reports and credit scores are maintained individually. This means that none of the records on the fiancée’s credit will appear on Marty’s credit file.

However, it can get more complicated. Whenever Marty and his fiancée apply for credit jointly, the lender will check both their credit histories. Even though their credit reports are not merged after marriage, the lender will take into account their total debt and both of their credit scores when making a decision to either grant or deny credit and at what interest rates.

If the couple wants to get the best rates and terms on their future loans, it might be a good idea for Marty to apply in his name alone so the lenders will only see his scores, which are pretty good.

Of course, this isn’t possible if they need both incomes to qualify for the loan – in the case of a large loan for a home or car, for example. If they both have to apply, the lender will see both of their credit reports and scores.  That means they won’t be able to hide her debt.

Here’s something else that Marty and his fiancée need to think about:

When two people get married, it is common for at least one of them to significantly change how they use credit.  This is dangerous in cases where one person exits the credit world and depends solely on the credit of the spouse.  If this happens, the credit files of the “dependent” spouse can become stagnant and his or her credit scores can begin to suffer because there is no new credit information being added to the files.  As we all know from reading AskJohn, credit avoidance is bad for credit scores. 

It’s in both of your best interests to maintain individual credit during the marriage so that your credit reports never get stale and your credit scores never suffer.  The worst thing that can happen -- and it happens a lot -- is for you to get divorced and have no recent credit to fall back upon. 

So Marty is stuck between a rock and a hard place. It’s best if he make the applications for credit on his own because his credit scores are better than his wife’s.  The family benefits as a whole because they pay less interest. However, it’s better for his fiancée if she applies jointly because her credit reports and credit scores would continue to exist with new and fresh credit information because the accounts would be in both names. Assuming the accounts are paid on time and managed properly, this could actually help her scores over time.

So while none of the options are perfect all the time, at the very least Marty and his new spouse should be informed about the advantages and disadvantages of each of the various credit management options.

If you have a question or comment for John or would like to suggest a topic then please send him an email to AskJohn@credit.com.

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