It could be the most joyous moment in your life to marry your significant other, but things can take a turn for the worst if you do not check each other's financial situation. Having an honest money conversation beforehand can give you a realistic picture of where you both stand to avoid disappointment later which can negatively impact your credit score. Here are 3 ways tying the knot can affect your credit score.
Will the two credit reports become one?
You can breathe easy knowing that your credit report and credit scores will not be mashed into one. This can be beneficial in the sense that if your partner happened to hit a rough patch financially that affected their credit report negatively it will not affect your report. This means if you ever need a loan you can use your credit report or score to take out a loan on behalf of your spouse if your credit report is in good standing.
However, it is important to still have an honest conversation around both of your financial situations to avoid falling into a debt spiral. Taking out a loan on behalf of your partner that is financially irresponsible can eventually affect your credit score. It is vital that the spouse who has a bad credit report find ways in improving their credit report to improve their financial standing.
Will my credit history change once I have changed names?
For married couples that opt to change their last name can be another big step to take. A lot may be changing in your life, but this doesn’t mean that your credit history will be wiped clean. Your credit history will still be listed under your new name.
Therefore, if you have any negative listings or arrears it is important to have a plan on how you plan on removing these from your file. This can be done by paying off any existing debt you have off or fixing errors on your credit report that can affect your credit card or loan application in future. You can also assess the way in which you use your finances to see if there is anything that you need to change or cut back on to avoid falling into arrears.
In which scenario can your spouse's credit history affect you?
There will come a point in time where you will want to take out a car loan, credit card, or a home loan to help take care of your expenses. Taking out a joint application makes sense in the case where one partner has bad credit or a weak credit score. However, this can affect you in the sense that a lender can look at your application and reject it due to your partner's bad credit score.
There is also the possibility of attracting a loan that comes with an interest rate and fees that are higher. You can opt to take out a loan separately to improve your chances of being approved, but in some cases, such as taking out a mortgage you won’t be able to do so.