While planning a wedding and their new life together, most couples aren’t thinking about how marriage might affect their credit. Will her student debt show up in your pristine credit file? Will your bankruptcy destroy his excellent credit score? Should you close the accounts you have but don’t use?
Mine + Yours = Ours? (maybe not)
Dear Mary: I’ll be getting married in a few weeks. I have excellent credit; my FICO credit score is 820. My fiancé, not so much. She has pretty bad credit and even filed for bankruptcy two years ago. Once we are married will her poor credit hurt my credit score? Travis
Dear Travis: Congratulations on your upcoming marriage! Fortunately, your spouse’s past credit history will have no impact on your credit profile once you are married. Only when you apply for credit as joint account holders or you add her either as an authorized user or a primary user to one of your credit-card accounts will any information be shared on both of your credit reports.
However, when you want to buy a home together, your spouse’s negative credit history will impact your mortgage rates if you need both of your incomes to qualify for a mortgage. It’s going to be important for you to work together to improve her bad credit score. Her bankruptcy will remain a matter of public record forever, however only reportable for 10 years. Eventually, it will fall off her credit reports. I wish you both a lifetime of joy and happiness!
Do credit files become co-mingled?
Dear Mary: My husband and I do not have, nor ever have had, any joint credit such as credit cards, bank accounts—with the exception of one mortgage on which we are co-owners, holding title as joint-tenants. We’ve been married for two years.
Because we do have that one joint mortgage with a bank, how does this affect our individual credit reports and resulting credit scores? Does all of his credit history now show up on my credit report, and will my credit history show up on his? Emily
Dear Emily: Only those accounts that you hold jointly or on which you are an authorized user will show up on your credit report. However, your state’s laws may have a different take on whether or not you can be held liable for one another’s debts.
Some states have “community property” laws that might hold you responsible for your husband’s debts even though you are not on the account and it does not show up at all in your credit report. You would need to check with an attorney on that regarding the laws in your state of residence.
Interestingly, FICO announced in 2007 that it would no longer recognize authorized users in the credit scoring process. However, that decision was reversed in 2008 when the company said that it would include authorized user accounts when calculating a person’s FICO credit score.
What anyone who is an authorized user on another’s credit-card account needs to know is that all of the credit information on that account will be reported—not only the positive data. That means if the account owner misses a payment or pays late, that negative information will be reported to your credit file as well.
I’m reminded of one reader who wrote that he was an authorized user on his mother’s credit card account, simply as a way that he could use her account to pay for her needs in her last years.
When she died leaving a huge balance with numerous over-limit penalties and late fees, he was shocked to discover all of the negative information was being reported to his credit file.
In the end, he was not responsible for the balance due and the account was written off as she left no assets. But all of the negative information will be reported to his credit file for seven years from the date the account was written off. He has no recourse because the information being reported is true, albeit devastating. Authorized usage has its pitfalls.
You gotta’ know when to close ’em
Dear Mary: I have had several credit cards over the years, many of which still appear on my credit report. At one time I was told not to close these accounts, even though they are paid off. My FICO score is around 730.
Do these open accounts affect my credit score, and should I leave them open or close them? I still have credit card debt that I am paying off, always making twice the minimum payment. Rosemary
Dear Rosemary: I suggest you just leave these accounts be. Here’s why:
FICO credit scoring gives points for history, which means the longer you’ve had an account, the more valuable it is in the scoring process. If you were to close multiple accounts now, that could wipe out that history and negatively impact your FICO score. Should that happen, you could see an interest increase on the credit card balances you’re currently paying off.
Another reason: Even though those accounts are at $0, they impact your “utilization rate,” which is the ratio between the amount of credit card debt you are carrying currently and your available credit on all accounts combined. The rule of thumb is that you should never be using more than 30% of the credit you have available.
If you were to close accounts with $0 balances that could send your utilization rate through the roof and cause your FICO score to plunge. Best advice: Leave well enough alone for now and concentrate on paying off your credit card debt. Once you reach a zero across all of these accounts (yay!), closing some of those accounts would not be as impactful on your credit score.