One of the most common worries married people have about their credit score is whether their spouse’s low credit will affect theirs.
The good news is that even if you are married, your credit score remains your own private and personal affair.
The bad news, however, is that if you want to finance bigger purchases, you’ll need a little help from your partner.
After all, two is better than one, right?
Why you need to help your spouse increase credit score?
Though credit scores are treated separately, you will inevitably have to join forces to qualify for joint loans such as mortgages and car loans. These are bigger types of loans which lenders might hesitate to offer if either of you has an unattractive credit score.
If they do offer, they will compensate the risk by giving you a high interest rate.
If you have a good credit score but your spouse doesn’t, don’t fret. You can help him or her rebuild his or her credit so that you can enjoy the financial benefits that lenders give to borrowers with great credit and get that dream purchase you want or need.
Here’s what you can do
1. Encourage your spouse to focus on the two most important factors in credit scoring, namely…
A. Payment history – This is the part where a lot of people flunk. It seems convenient to borrow from a plastic but almost always inconvenient to return it on due date. Thus, the finance charges and the negative effect on their credit history. Unfortunately, this constitutes more than 1/3 (35%) of your credit score.
B. Credit utilization rate – This makes up 30% of one’s credit score. Credit utilization rate refers to the amount or balances you keep relative to your credit limit. To have healthy utilization rate, a rule of thumb is to keep outstanding balances under 20% of your total credit limit.
If your partner’s habits with regard to the above mentioned improve, you could also expect her credit score to improve. Easy? Here are other things you can do.
2. Don’t pay for his or her debts
As someone who has taken good care of her credit score, you might be tempted to clear your spouse’s debts by paying for it out of your own pocket. Don’t scratch that itch to fix someone’s mistakes, because your partner might just be able to learn a lesson or two from this experience.
Paying for your spouse’s debt won’t teach him any lesson. Instead, it will only reinforce his overspending habits because there’s a loving spouse who can bail him out.
3. Make adjustments to your household budget
And use the amount you’re able to save to make a dent in your spouse’s debt. This is of course a tedious and slow process but the benefit lies in building the discipline and habit in taking care of one’s obligations. Habits can take a life of their own in people’s lives and if they’re positive financial habits, they can have a lifelong impact on your finances.
4. Alternatively, you can give him more breathing room for her budget
You can do this by paying for a shared responsibility like rent, utilities, or insurance, if your own income allows. That way, she can allot more of his income to paying down her debts. And don’t forget our Tip #1!
5. Make him an authorized user of your credit card
As an authorized user, your partner can benefit from your account history if both of you use credit responsibly. The downside, however, shouldn’t be ignored: if your spouse fails to meet his or her obligations, both of your scores will take a dip.
…which brings us to another important point that many couples seem to miss.
Getting a new credit card is one strategy to rebuild a credit history but if your spouse needs you to co-sign for it, you might want to consider the possible consequences.
Co-signing for a credit card means putting your name on the line, in case the primary account holder fails to pay his or her dues. It may not seem obvious, but the lenders are actually asking you to take the risk they are not willing to take. They will hold you accountable in case the original borrower refuses to pay back what he owed. Worst-case scenario is when relationships break down and lead to divorce. Being the co-signer, you find yourself still liable for a debt.
Of course, we don’t want that to happen to anyone but if you’re one of those “prudent” types, here’s what you can do.
A less risky approach is to have your partner open a secured credit card, where the collateral is his or her own money. That way, your spouse can charge only up to the limit of his collateral. It’s safer yet a better way to rebuild a wrecked credit.
Remember, however, that none of these tips would work if you and your spouse don’t have open lines of communication when it comes to financial matters and goal setting.
If your partner doesn’t understand what you are trying to achieve and how he or she can support you, these tips simply won’t help.
In such case, you might have to work on that part first so your spouse can understand and truly appreciate your efforts. After all, it’s for both of you.