It’s complicated: how relationships affect your credit
Relationships and finances seem to be intertwined no matter how hard you try to separate the two. The truth is, not many of us like to talk about finances, especially at the start of our relationships. However, we should not avoid talking about finances. Your relationship can help you build or ruin your credit score.
How different types of relationships affect your credit
Think about it, how much student debt do you have? Nationally, that number rises to an astounding $ 1.5 trillion. Most of that debt is held by millennials who are now considering forming serious long-term relationships and getting married. You or your partner can bring a lot of debt into a union. It will inevitably marry your finances as well as your romance.
While you can have great credit as an individual with separate accounts, marrying and co-signing loans with a partner who has bad credit or bad spending habits can potentially have a negative impact on your good credit. Here are some common ways your relationships can affect your credit score:
It is quite natural that you want to impress your new partner during the dating phase. It means:
Go out on dates
Splurge on gifts for their birthday, Christmas and so on
Get a makeover to show them that you have style
You can even do other things like pay some of their bills to show that you are capable and that you are a supplier or help them by co-signing a loan. It can be a financial strain. Also, if they default on the loan, you will be responsible and your good credit will suffer. Not to mention, if the relationship doesn’t last, you’ll end up in more debt.
See: All that money you spend every year on bad dates could pay a month’s rent
Once married, things get a bit 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 credit scores.
Problems often arise when you decide to jointly apply for a credit card or loan, as this is when both of your credit scores are checked. If either of you has bad credit, your joint application will either be refused or the interest rates you get will be higher based on your spouse’s bad credit.
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Plus, the mere fact that running a home can be expensive will somehow affect your credit, especially if one of you isn’t as financially responsible. The history of any joint accounts you have appears on your credit report and that of your spouse. If that account were to become delinquent, both of your credit scores would go down.
Unfortunately, 40 to 50% of all marriages end in divorce. If you divorce, your finances will be affected in one way or another, even if your marriage ends on good terms. If you’re not careful, it could also negatively impact your credit score in the following ways:
- You can’t pay your bills on time. Since you only have one income left, you may find that some of your bills are not paid on time or not paid at all due to your reduced financial capacity.
- You had shared accounts. Joint accounts may not be paid because the person responsible for them as determined by the judge does not pay them. As such, both of your credit scores will suffer because at the time of opening the account, you are both responsible for it.
- You have a vindictive ex. If you have a bad separation and your ex decides to hurt you financially, they could be maximizing all shared credit cards and maybe even cleaning up your joint accounts, crippling you financially.
See: Divorce after 50: what I wish I had known before
How to Protect Your Credit Through a Relationship
It may seem logical to keep your finances separate from those of your partner and avoid having joint accounts. But you might not be able to do it, especially if you are married. There are several steps you can take to make sure your finances don’t take a hit from your relationships:
Have a frank conversation with your partner about your financial habits.
Maintain your financial discipline by managing your money even during the dating phase. If you find that you can’t do it, find a new source of income to offset the increased expenses.
Let the spouse with the best credit score apply for loans and borrow money for the best rates.
You may also decide to apply for joint accounts and pay higher interest rates in an effort to improve your spouse’s credit rating in the long term. You can refinance later for a better interest rate.
Ideally, you should have a frank conversation with your partner. You both need to be honest with each other about your financial weaknesses, strengths, and debts. Once you’ve got it all out, you can make a plan to make sure neither of you are making bad financial decisions.