If the law of love says opposites attract, then it's no wonder that sometimes Miss Good Credit finds herself falling head-over-heels for the bad boy, Mr. Poor Credit. There are a few things this unlikely pair should know before they walk down the aisle.
Marriage and finances
When two people marry, they decide to share everything, but the wedding license doesn't force a merger between two credit reports. Married couples keep their separate credit files. Wedding vows do not automatically ruin anyone's good credit. Unfortunately for Mr. Poor Credit, they don't automatically improve anyone's creditworthiness, either.
That can change if our couple decides to share financial accounts. After all, marriage means not just love and companionship, but also mortgages and joint checking accounts. The bad behavior of one spouse can start to affect the other if they rush to merge their financial lives without first cleaning up any past credit transgressions or mending the problems that led them to a checkered credit history in the first place.
Married couples, separate finances
Although it may sound heartless, maintaining some financial distance for a while might help a couple in the long run.
Let's say Mr. Top Credit and the newly Mrs. Bottom Credit visit their mortgage lender. Because they've both taken to heart the Foolish advice to talk money before marriage, they have already had a long chat over a candlelight dinner about Mrs. Bottom Credit's poor financial past.
When they start shopping for a loan to purchase their first home, they have a few choices. Mr. Top Credit could purchase the home only in his good name, but he will probably qualify for a smaller loan than the couple would together. Often, the smaller loan won't be enough to purchase the home they want. They could apply jointly for a loan, but Mrs. Bottom Credit's poor record could cause them to run into limitations and get less attractive mortgage terms, a potentially costly proposition.
Another option is to put off their home purchase and spend some time rebuilding Mrs. Bottom's credit rating. This can take a while and will require our newlyweds to be diligent and patient. In the end, they would be rewarded with cleaner credit, better loan terms, and maybe even fewer fights over money.
Fixing bad credit
The spouse with poor credit history can start cleaning up his or her act by ordering free copies of each credit report held by the three large credit brokers. That will quickly reveal the problems that need to be tackled, as well as any incorrect information that might be unnecessarily dragging a credit score down. Dispute any incorrect information with the credit bureau, and follow up to make sure it gets fixed.
Our bad creditor will then need to start mending the errors of his or her ways. That means determining how much is owed and to whom, catching up on payments, and demonstrating responsibility to lenders. You can get many more details about how to do this in the Credit Center and a free guide that tells you how to get out of debt.
Maintaining separate financial lives for a while might be a good idea if Mrs. Good Credit has some doubts as to whether her bad-boy husband has really mended his ways. Past credit problems can be the result of a job or health emergency that threw someone's financial life into turmoil. On the other hand, they can be a sign of irresponsibility. Mrs. Good Credit may want to hold off on merging her financial life with her new husband until she sees him acting responsibly.
If that's the case, Mrs. Good Credit might want to postpone creating any joint accounts or adding her husband to her credit cards. Any late payments or other misdeeds occurring on joint accounts will show up on both spouses' credit reports. She will also be just as liable for any debts incurred on those accounts, even if her husband's the spendthrift.
If you want a real world example of how one couple merged their financial lives, read the Financial Manifesto written by a happily married pair of Fools. You might also want to check out these other Foolish articles:
- Couples and Cash: How to Handle Money with Your Honey
- Seven Financial To-Dos for New Couples
- Savings for Two