For most adults who are out of school, there's only one "grade" left that really matters in your life -- your credit score. A good one can save you hundreds of thousands of dollars over the course of your lifetime, and a poor one can in many ways prevent you from living the life you want to.
In this clip from Motley Fool Answers, Alison Southwick, Robert Brokamp, and Fool alumna Dayana Yochim address a listener's fears about why her credit score has tumbled from awesome to merely great since she and her husband got an auto loan. Now she's concerned it will affect their plan to get a mortgage. The team explains what really happened, and in a twist that will shock married couples everywhere, it turns out the husband is probably not to blame.
A full transcript follows the video.
This podcast was recorded on July 12, 2016.
Alison Southwick: The next question comes to us from Meg. Meg's been married for a couple of years. She's very good with money -- her husband maybe a little less so. She writes: "We have kept our credit card accounts separate. The only credit we do share is a car loan. We bought a car last year, and at the time his credit score was around 700, but mine allowed us to get a much better interest rate on our loan."
Dayana Yochim: Go, girl.
Southwick: "A couple of months after we bought the car, I checked our actual FICO score so I would have an idea of what it was before we started shopping around for mortgages, and I saw that mine had dropped from the 840s to the 770s. How can I get my score back up? Did my husband's score affect my score because we were both on the car loan? Should we try to get the mortgage just in my name to avoid this issue, or did just having the car loan -- about $20,000 at the time -- have a big impact on my score, and will it go back up once it is paid off? What happened?"
Yochim: No. 1, there is no such thing as a joint credit score. Whatever is attached to her Social Security number or her account goes there. Whatever is reported to her husband, never the two shall mix.
Southwick: So his history can't have an impact on hers.
Yochim: No. However, if they have a joint loan, and payments on that car loan are late, that affects both of their scores, because they're both responsible for paying that debt. What probably happened -- because she said [the drop] was a couple of months later -- was there suddenly was a new line of credit on there. It was high, it was a revolving loan, and so basically the utilization -- what she owed versus the available credit she had -- had a gap that started to narrow. Suddenly you owe a lot more.
You want to keep all of your debts below 30% of your available credit. That's ideal. Even better is keeping it much lower than that. When you go into a loan situation like that, there is an immediate ding to your score. She should be happy: 770 is perfectly fine.
Robert Brokamp: Yes, that's good.
Yochim: She's going to qualify for the best rates.
Southwick: I can appreciate that she's thinking, "I used to be better." Talking to her husband and saying, "You did this to me! I was perfect before you came along."
Brokamp: Anything over 740 is considered pretty top of the line.
Yochim: 760, even better.
Brokamp: There you go. The cut-off used to be 720, and then the Great Recession came. They then moved it out to 740, but you're saying it's even higher now.
Yochim: Yes, 760 is usually like, "OK! You're doing good. Great."
Southwick: See, Meg, you're doing good.
Southwick: You're doing great.
Brokamp: I will point out that she's asking about whether she should get the mortgage in her own name. If it's in her own name, it's her record unless she is in a community-property state. In that case, when you're married, any loan is considered the property of both members of the couple. There are nine community-property states, and if you live in one, I assume you know you do.
Yochim: Something she should consider with the mortgage is that if it's only going to be in her name [and] only her income, they're going to base the amount of the loan on her income.
Southwick: And not take into account his, so it's less house.
Yochim: Right. But I think mortgage lenders will take into account other circumstances. It's not necessarily a big robot making a decision, but that is a factor to consider.
Brokamp: And there's the question of if it's her mortgage, and she's going to deduct the interest that they've filed jointly, this is very complicated.
Yochim: Oh my God.
Southwick: Oh my goodness.
Brokamp: You should have married someone with a better credit score.
Yochim: No, she's doing OK. She's helping him with his credit score and his finances.
Southwick: I'm sure he does stuff around the house, like move heavy things, and get jars off high shelves. I'm sure he carries his weight, too. Or not, in which case, Meg, I'd like to introduce you to a few available men.
Yochim: Oh, you're horrible.
Southwick: I actually don't know any. Any men. I don't know any good men with good credit scores.
Brokamp: They're the worst.