What Does Your Relationship Mean for Your Credit?
Even after trying your best, your relationship and finances are bound to get entwined at some point. Rest assured, there is no need to panic – you just need to adopt a systematic approach and come up with reasonable solutions.
How do relationships affect credit score?
Sharing financial accounts can be an effective way to simplify your lives once you stay under the same roof. But if you have joint accounts, they won’t impact credit score unless they end up overdrawn and get sent to collections. Joint credit cards can affect score so credit should be used thoughtfully. If you share joint cell phone plans, and someone accidentally misses a month, it can cause your credit score to plummet.
The logical step after an engagement or live-in (or both), is to tie the knot. Even if your credit scores don’t merge, your partner could impact your credit score if you have joint accounts, such as a credit card. Should your spouse mismanage a joint account, it could mean a ding on your pristine score. If you apply for a mortgage or other loans (applied jointly), it might be rejected due to your spouse’s bad credit score. Lenders will take both of your credit histories into account when underwriting an application, so the partner with a better credit history can apply as an individual.
Divorce can lead to financial trouble if you aren’t careful. For instance, your shared accounts not being paid affects credit score. If your ex is supposed to be paying the bills, but misses due dates, it negatively impacts your rating. Moving out doesn’t mean the auto lender or mortgage company automatically removes your name off the account. Vindictive ex-spouses could max out joint credit cards, or intentionally stop paying bills that bear your name. Yet another issue is if you can’t make ends meet without your former partner's paycheck – downsizing ASAP is a must to minimize fallout of bounced checks and overdrafts.
How to protect your credit?
Communicate openly with your partner regarding financial habits, and maintain financial discipline by managing money even through the dating/live-in phase. If the latter isn’t possible, look for an additional source of income to offset the increased spending. As mentioned, let the spouse with the higher credit score apply for loans and borrow money.
Structure a financial plan early on in your relationship that keeps you stable and helps to maintain a steady credit score.