What Does Your Relationship Mean for Your Credit?

Relationships and finances seem to intermingle no matter how hard you may try to separate the two. The truth is that not very many of us like to talk about finances, especially during the early stages of our relationships. You shouldn’t avoid talking about finances though. Your relationship can help build or ruin your credit score.

How Different Types of Relationships Affect Your Credit

Think about it, how much student debt do you have? Nationwide, that number stands at an astounding $1.5 trillion. Most of this debt is held by Millennials who are now thinking about getting into serious long-term relationships and marrying. You or your partner can bring a whole lot of debt into a union. This will inevitably marry your finances as well as your romance.

While you can have excellent credit as an individual with separate accounts, getting married to and co-signing loans with a partner who has bad credit or bad spending habits can eventually negatively impact your good credit. Here are some common ways your relationships can affect your credit score:

Dating

It’s only natural that you want to impress your new partner during the dating phase. This means:

• Going out to restaurants on dates
• Splurging on gifts for their birthday, Christmas and so on
• Giving yourself a makeover to show them that you have style

There are other things that you may even do such as paying some of their bills to show that you are capable and are a provider or helping them out by co-signing on a loan. This can be a financial strain. Also, if they default on the loan, you’ll be responsible for it and your good credit will suffer. Not to mention, if the relationship doesn’t last, you’ll end up deeper in debt.

Marriage

Once you get married, things get a little bit more complicated. The good news is that getting married doesn’t affect your credit score. You and your spouse continue to have separate credit reports and scores.

The problems often come when you decide to apply jointly for a credit card or a loan because this is when both your credit scores are checked. If one of you has bad credit, then your joint application will either be denied or the interest rates you get will be higher based on your spouse’s bad credit.

Additionally, the mere fact that running a home can be expensive will in one way or another affect your credit especially if one of you is not as financially responsible. The history pertaining to any joint accounts you have appears on both yours and your spouse’s credit reports. Should that account become delinquent, both your credit scores go down.

Divorce

Unfortunately, 40 – 50% of all marriages end in divorce. If you end up getting a divorce, your finances will be affected one way or another, even if your marriage ends on good terms. If you aren’t careful, it could also negatively impact your credit score in the following ways:

• You can’t pay your bills on time. Since you now only have one income, you may find that some of your bills don’t get paid on time or at all because of your reduced financial capacity.
• You had shared accounts. Joint accounts might go unpaid because the person responsible for them as determined by the judge doesn’t pay it. As such, both your credit scores will suffer because at the time the account was opened, you’re both responsible for it.
• You have a vindictive ex. If you have a nasty split and your ex decides to harm you financially, they could max out any shared credit cards and maybe even clean out your joint accounts, financially crippling you.

How to Protect Your Credit Through a Relationship

It may seem like the logical thing to do to keep your finances separate from your partner and to avoid having any joint accounts. Bur you may not be able to do this, especially if you’re married. There are several steps you can take to ensure that your finances don’t suffer as a result of your relationships:

• Have a candid conversation with your partner about your financial habits.
• Maintain your financial discipline by managing money even through the dating phase. If you find that you can’t do that, then find a new source of income to offset the increased spending.
• Let the spouse with the best credit score apply for loans and borrow money to get the better rates.

You can also decide to apply for joint accounts and pay higher interest rates with the aim of improving your spouse’s credit score in the long run. You can refinance later for a better interest rate.

Ideally, you should have a candid conversation with your partner. You both need to be honest with each other about your financial weaknesses, strengths and debt. Once you have everything out in the open, you can come up with a plan to ensure that neither of you is making poor financial decisions.