Recs

4

Love and Credit Don't Mix

There's no arguing that, financially, twosomes have a leg up on their single competition.

Couples get price breaks on insurance premiums, save money by splitting the cable and electric bills, and have built-in justification for buying the family-sized bag of chips. Scoring the best interest rates on big loans (to buy homes and cars) is more of a snap, too, since dynamic duos have two credit scores from which to choose.

Don't let all the togetherness go to your head, though. While it's tempting to show your love and trust by adding your partner's name to every account, all that sharing might not be in your best interest.

Being overly chivalrous with credit could lead to a long stay in the financial doghouse. Should the unthinkable "d" words arise (namely, divorce or death), leaning too much on your significant other can prevent you from standing on your own two feet, credit-wise.

Look out for No. 1
When it comes to commingling credit, a dose of self-interest is due. While there's no such thing as a "couples" or "joint" credit report, if you both are named on a loan or listed as joint account holders, any flub (late payments, defaults) on the account will mar both of your credit files, no matter who forgot to put the mortgage check in the mail.

The biggest danger couples face is losing their individual credit autonomy. It doesn't take long for a credit file to go dormant, either. As little as six months of no activity on an account can make a person unscoreable. (You'll still have a credit file, but without anything for your lenders to report, the credit-scoring system just kind of gives up.)

What's the big deal?
If you find yourself on your own because of either of the aforementioned "d" words, your access to lines of credit could be swiftly cut off. Without established and active credit in your own name, you'll have a harder time qualifying for loans or new cards.

On the flip side, there's bad news for those who try to boost their scores by becoming an authorized user on a loved one's account and piggybacking on their partner's better-credit DNA. The popular FICO scoring model (from Fair Isaac) no longer factors "authorized user" accounts into its formula.

That leaves only the option of naming your sweetheart (or kid) as a "joint account holder" -- a legal relationship not to be taken lightly. Doing so is like adding "Until debt do us part" to your vows. If things go south in your relationship, untying the credit knot can get complicated if you're both unwilling to let go of joint accounts.

Credit tips for twosomes
A few simple moves now will keep things harmonious on the home front -- and in your credit files.

  • Keep your reputation intact: Maintaining your self-sufficiency in bankers' eyes is easy to do -- and you won't even offend your spouse: Simply keep open the accounts you established in your single days. But don't relegate those cards to your sock drawer -- rotate them into use every few months and use them for small purchases to give card companies activity to report.
  • Share your credit secrets: Put it all out on the table. Pull your free reports at annualcreditreport.com, dim the lights, and review each other's reports (and no judging or eye-rolling). If there's a mess to clean up in either or both of your files, work on it together. Or, if friendly competition is more your style, see who can improve their credit score faster. (See our tips on boosting your FICO score fast.)
  • Vow to pay those bills on time: Nagging's not attractive, but a few moments of bickering about whether payments were sent in on time is better than taking months to try to clean up a credit mess.

This article was originally published on Aug. 21, 2007. It has been updated.

Fool consumer finance expert Dayana Yochim aspires to have the highest credit score on the planet. The Fool has a disclosure policy.


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  • Report this Comment On December 31, 2008, at 8:09 PM, QueridaNegra wrote:

    Actually, the revised FICO model does still factor "authorized user" status into your score, but it's not almost equally weighted as it was before. Also, there are many companies who don't automatically upgrade to the latest score model that FICO offers, and therefore AU status will be scored the same as before for those particular lenders. Just like with operating systems, FICO score models take time for widespread adoption.

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