Marriage is more than just a socially and legally sanctioned union between people; it also entails a lot of rights and obligations, which make spouses inextricable in many senses. One of these aspects is the financial lives of the spouses. Your spouse’s credit score can influence your economic life, even if you keep your finances detached.
While your spouse’s credit score would not directly affect your credit score, it can have long term repercussions for you. Your spouse’s credit can impact your finances in a number of ways. For instance, if you apply for a joint loan along with your spouse, the lender will, in all probability, check both of your credit histories. If either yours or your spouse’s credit history is lousy, it’s likely to affect your chances of getting a loan even if the other has a great credit record. Even if you do receive a loan, it’s likely to have a high-interest rate.
Another situation where your spouse’s bad credit history can hurt your financial prospects is when you attempt to acquire major assets together. So if you want to purchase a home together and apply for mortgage along with your spouse, your spouse’s woeful credit history can have a detrimental effect on your chance of getting your mortgage approved, or approved with beneficial terms.
While you may think of applying for credit in your name as a way of bypassing your spouse’s adverse financial history but doing so will mean that you’re going to incur more risk by doing so. If you shoulder the lion’s share of financial liability as a couple, then it would have severe repercussions on your financial stability if you get divorced later on. To avoid such a situation, it’s better to ensure both of you have an equal stake in your debts as a couple, to ensure that you don’t get overwhelmed with the responsibility of paying off your loans.
So, it’s clear that it’s important to help your spouse improve their credit scores considering the various benefits of a good credit score. You can do the following to help your spouse achieve a good credit score:
Formulate a Household Budget
Sound money management habits lie at the core of every good credit score. The most basic of such habits start with coming up with a budget or a plan to decide how you’re going to spend money. If you don’t have one, it’s best to come up with one as soon as possible. Such a plan should be formulated keeping in mind your income and expenses. A budget will provide clarity about your financial capacity and give you an idea about whether you need to restrict your spending or not. This may not seem important but it’s vital to keep a strategy to build a good credit score.
Build an Emergency Household Fund
Once you’ve come up with a household budget, the next thing that you should do is build an emergency household fund that you and your spouse can access whenever required. Such a fund would prevent both of you from resorting to unnecessary loans or relying on a credit card. Even if you do employ a credit card, you can use money from the funds to pay off the balance. Ideally, you should have at least three to five months of expenses in your emergency fund to take care of any contingency that may come up.
Make Your Spouse an Authorized User on One of Your Older Credit Cards
If you add your spouse as an authorized user on one of your credit cards, it can help your spouse in establishing a good credit history without much hassle. Ensure that your issuer reports authorized users to bureaus that look after credit reporting.
Another variant of this strategy is to ask your spouse to acquire a secured credit card. Since it is backed by a cash deposit, it would help in building a positive credit history without incurring the risk of going into more debt. The most difficult aspect of this strategy is to come up with a security deposit but once you have a household budget, you and your spouse can easily come up with a security deposit. Both strategies would help you in improving your spouse’s credit score without acquiring more debt.
However, it’s important to remember that both of you must exercise good credit habits and be responsible with your spending and payments. It’s crucial to use only a portion of your credit limit and regularly paying back the balance every month for this strategy to work properly.
Becoming Informed About Credit and Aware of Good Credit Habits
It may seem unnecessary but most credit mishaps happen due to lack of awareness about the basics of credit and recommended credit habits. You may want to talk to your spouse and help them understand how credit bureaus, credit history, and credit reports work. Explain that late payments have a severe repercussion on one’s credit scores and timely payments are important in building good credit scores. Going over credit reports, and identifying the problem areas would be a good start. After that, you can try to formulate plans to fix them. For instance, you may want to take care of past due balances as it would reflect poorly on your credit report.
Pay Off Debt
Too much Debt is detrimental to one’s credit scores. It’s advisable to settle one’s debts to the greatest possible extent in order to boost one’s credit scores, otherwise, you have to pay the consequences of not paying credit card balance. You may want to employ your credit reports and billing statements to figure the extent of your debts and compile a list of debts to ensure clarity in this regard. After this, you can come up with a plan to settle your balances. You can take care of your debts by prioritizing one debt while paying the minimum towards the others. Doing so would help you to tackle your debts in an organized manner.
Start a Joint Credit Card Account
Since you would apply for the credit card together, the credit card issuer will go through both of your credit histories before approving the application. If the credit history of any one of you is good enough, then your application is likely to be approved. You and your spouse would be jointly liable as a joint account holder. If anyone of you does not make payments on the account, the creditor can make the other spouse pay off the balance.
This is a good alternative to the strategy of having your spouse as an authorized user to your credit card account because it would end making you solely liable for charged incurred on the card even though your credit history will appear on your partner’s credit report.
However, it is advisable to strategize as to how much you would be using the card and for what payments. There needs to be clarity between both of you regarding the purchase limits and payment habits to make sure that doing so would have a positive effect on your credit history and not end up as being another liability for both of you.
Encourage Your Spouse to Make Timely Payments
If your spouse has a bad credit history, then the easiest way to boost your spouse’s credit history is to ensure that they make timely payments to settle their debts. This will help to create a positive credit history. According to FICO, 35% of your credit score is based on your payment history while 30 % is based on the amount of outstanding debt.
So, ensuring that your spouse pays down their debt in a timely and regular manner can go a long way in increasing your spouse’s credit score. It would be advisable to have financial planning meetings weekly to ensure that both of you are on track in terms of repayment of bills and debts.
Taking responsibility for your credit can go a long way in ensuring your financial stability. Your spouse’s credit situation can have an impact on your financial prospects. Therefore, it becomes your duty to assist your partner in rectifying bad credit history and making sure that they imbibe good habits when it comes to credit. Settling your spouse’s credit issues while taking care of your credit stability can be a complicated affair but you can achieve this by taking a few measures.
Formulating a household budget would be a good start which can be followed by building an emergency household fund. You can also take certain measures to rectify a bad credit score over a short period while taking on little to no debt. For instance, making your spouse an authorized user on one of your credit cards would be a good start. You can also start a joint credit account to ensure they remain responsible for their finances. Paying off existing debts can also help boost your spouse’s credit scores. But at the end of the day, you’ve got to make your spouse aware of the good credit habits and basic credit knowledge to sustain credit stability over a long period. Remember, doing all this can go a long way in ensuring overall financial stability for you and your spouse.
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