How Your Credit Score Affects Your Spouse’s Credit History
By Eva Norlyk Smith, Ph.D.
January 21, 2011
Love is blind, but credit rating agencies are not. If you have a good credit score, but your spouse’s is lacking (or vice-versa), can it affect you? The short answer is no, not directly. Upon marriage, each partner continues to maintain their individual credit rating and history. However, under certain circumstances, one partner’s credit score can affect the other — for better or worse.
On the bright side, a spouse with a good credit score can actually help a struggling partner. For example, if the partner with good credit adds the other as a joint account holder on a credit card — the other partner’s score will likely improve.
How? The good credit history of the account will now show up on the other partner’s credit report. In addition, that partner’s credit utilization score will likely improve, if the additional credit line decreases his or her overall ratio of debt to available credit. (To get the full benefits of this move on credit scores, credit utilization should preferably be kept below 20 percent).
This practice is often referred to as piggybacking; it was originally introduced to help homemakers develop a credit history by adding them as authorized users to their spouse’s account. The practice for a while was grossly misused by credit repair companies to boost scores of clients. However, credit rating bureaus have since developed ways to catch deceptive uses of piggybacking, but the practice is still useful, and perfectly legitimate, when it comes to adding family members or spouses to an account.
On the other hand, if a couple wants to establish a joint liability (like a joint credit card or a mortgage), one partner’s poor credit can impact loan terms and even loan approval. For example, if a couple applies for a joint mortgage and one spouse has a poor credit score, the couple will be unable to get the best interest rate and loan terms, even if the other spouse has stellar credit.
In evaluating the loan application, lenders collect scores for both spouses, and then focus on the median for each partner, and unfortunately, it’s the lower of the two that determines the rate and terms of the mortgage loan offered. In short, if one partner is deemed a risk, lenders are not willing to take any chances, even if the other partner has excellent credit.
So is there any way to avoid this drawback? One strategy is to have only the partner with excellent credit apply for the mortgage in order to get a better rate — or get approved for a mortgage in the first place. However, only the income of the partner applying will then be taken into account, which could easily qualify the couple for only a lower mortgage amount, particularly if the person applying for the loan is not the family’s main breadwinner.
In such situations, if getting better terms means that you’d get approved for a lower mortgage amount and then are unable to get the house you want, you’re probably better off buying the house jointly and include both names on the mortgage application, even if it means paying a higher interest rate. Of course, you’d have to decide whether the house is worth paying the higher interest rate for, and whether you can truly afford it, given the loan terms. Fortunately, having your spouse’s name on the mortgage won’t affect your credit score in any way, even if he or she has bad credit, provided mortgage payments are paid on time.