Is my spouse dragging my credit score down?

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DTIAn inquisitive and avid reader, Robert, asked a great question in the comments section of last week’s article. His question, “If I have a 750 and I marry someone with a 550 does her low score affect mine once we merge?”  I answered, “No. And Yes.” This is a complicated question because there is nuance to the answer. Typically, a question such as this is answered, “Yes and No,” but No really should come first in this scenario.

No, your credit history or score is not affected by your spouse’s credit score. In Robert’s scenario, if he has a 750 and his wife has a 550, he still has an excellent rating and will enjoy all the benefits that come along with that number: lower credit card interest rates, lower mortgage rates, multiple credit card offers with 0% interest for longer periods of time, etc. His wife will need to continue to work on increasing her score.

When would your spouse’s score affect you? Your spouse’s credit history and score affects BOTH of you when you need or want to join in a joint venture or buy something together. Often, this is the case when you want to refinance a student loan, getting that small business loan to open a family owned business, filling out a joint application at a department or jewelry store, purchasing a car and absolutely when buying a home.

A brief note before I give you an example of how this works: the only time your personal credit score is combined with another person’s score is when you are a co-applicant, co-signer or are an authorized signer on someone’s credit card, line of credit, auto etc. As you can see,  I said “someone” because this can be the case, not only with a spouse but a significant other, your adult child, a friend or anyone with whom you join credit.

Here’s how and when your significant others credit history affects you:

When you decide to make a large purchase that requires both of you to sign onto the account. Unfortunately, for consumers more often than not, the lender places the emphasis on the lowest score of the two applicants, particularly if you have similar incomes. I know it seems counterintuitive to rational people because the higher scorer, per the financial institutions and the credit bureaus, are more responsible with money. This applicant should outweigh the lower score but sadly that is not the case. That would be best for the consumer, but what’s best for the financial institution is to use the rates they give the lower credit score. That’s one scenario of how you are affected by your mates credit score.

Another way you are affected is what I call the “combo.” The lending institution still will not take the higher of the two applicants’ credit scores but combines (combo) them and takes the average of the two to decide what credit category you, as a couple, fit into. In Robert’s example of a 750 score and a 550 score, the average is 650. Now Robert as an individual applicant goes from the excellent category to just fair, as a couple, with his mate who has a poor credit rating of 550. A real life example of the difference this can make is on the website of a particular auto dealership. A few month’s ago while doing some research I found that a 750 score was considered Tier 1 credit and the interest rate on a new car was 3.99%. Conversely, with the combo method and a combined score of 650, the interest rate is 9.95%. What a huge difference!

The last scenario is not often thought of when looking at joint credit and how it may affect you; however, it may be the most detrimental of all the scenarios. That is when the spouse’s credit score is so poor that he or she cannot be a signature on a loan or it’s more cost effective for the couple to have the higher scoring individual on the account alone. Why is or could this be an issue? Having one individual be responsible, on paper, for the house, the car, the student loans, the credit cards, the furniture etc. etc. raises that individual’s debt to income ratio. There are more than 1 or 2 factors that come into play when receiving credit. Debt to income ratio is a factor in any loan. That number determines if you have enough money on a monthly basis to actually pay all your bills. The higher your ratio, the less likely you will be able to incur more debt.

To figure out your debt to income ratio, simply divide the total of your monthly payments that would appear on your credit report by your gross monthly income. This does not include bills such as cable and cell phones.

At the end of the day, credit could be considered a necessary evil. If you do not KNOW THY SELF you could cause some serious financial problems for yourself and your mate. Use it wisely and consider all your options. Thank you Robert for a great question. I encourage others to make comments and ask questions. I will respond. If you are wondering about a subject so are others. You never know, you could be inspiration for the next article. Stay tuned…come back for more great reads about all things credit score related.

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Hey, Im Joshua, the founder of CNA Finance. I enjoy following the trends in the market and finding the catalysts that are making the moves. If you want to get in contact with me, leave a comment below or email me at CNAFinanceHelp@gmail.com Please keep in mind that I am not an investment advisor and nor is CNA Finance. This is a news and information gathering outlet. We may work directly with some of the companies that we write about. If we have a business relationship with an issuer, we will mention that in the articles. We also have various affiliate relationships with advertisers and may be paid if you sign up for a service that you were referred to through our website.

21 COMMENTS

  1. WOW absolutely amazing that you not only answered my question but did in such a way that I can understand and explain to someone else. I checked my Credit Karma account several times since your last article. I also so understand the importance of my Credit Swagger that I paid a outstanding account before they sent it to my credit report. It’s like I’m protecting my score like my dog Bentley protects his territory. Thanks for the mindset change. Headed to the 750 Credit Club…

  2. I have had a personal testament of credit score ratings. I consulted with a lawyer who confirms that applying jointly with a spouse with less than desired credit ratings will negatively impact overall score.

  3. Wow! This is really useful. I knew when I proposed to my fiancée that our scores would affect each other, but I didn’t know to what extent. This post clears a lot of the ambiguity to joint applications.

  4. I keep coming back to this site looking for the next bit of info to achieve my “swagger”. This I found very informative, interesting, and important. Credit scores effect ones quality of life. Next to good health, we certainly need a good credit score.

  5. Well stated! This is great information especially for new couples because we often get married then want to buy a home together. That’s when reality hits you of how important individual and joint credit is. How does having little credit affect your partner if he/she has excellent credit?

  6. Another great article. Interesting, the low score outweighs the high score when applying on a joint loan. My wife and I are both over 750, I’m glad I married someone with good credit!

  7. My wife’s credit was destroyed by her ex husband and it took some time for that situation to be remedied. We certainly learned the hard way, but patience paid off in the long run! Great article.

  8. Wonderful Article ! Joining together with someone with good credit is success in todays economy! So many times people do not grasp this concept until it is too late. I wish all of my Real Estate Clients, would better guard their individual credit. It is great when the married couple, buys a home together, then both can sign docs at closing and feel a sense of pride about the purchase. I often share with my clients that, it is never too late to get back on track. It just takes some time and discipline to restore your credit. Thanks for Sharing!

  9. My score is 750 or above depending on what report I am looking at. I haven’t so much as paid a bill late in over 10 years. Why isn’t my score higher or even “perfect”?

  10. Thanks for this article. Knowing how the joint applications work is really important and very timely for me personally. We are preparing to purchase another vehicle and will need to do the work to “KNOW THY SELF” before walking into the dealership so that we can get the best deal for our family. Thanks!!!

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