I'm getting married soon. I have pretty good credit — my FICO is in the mid-700s. My wife-to-be's score, on the other hand, is in the low-600s. That's fine. I know what I'm signing up for, and I'm going to help her with credit building. How do we start? Do I add her as an authorized user on my two cards? Or do we get a new card together? Can we qualify for a jointly held card together if her credit is low? By the way, her credit isn't bad because she's a crazy spender — she just had bad luck in her 20s with an auto loan and some bills in collections and, after that, she just never really put in the effort to build her credit up. Thanks. – Joseph
Congratulations! It's great that you're already looking ahead to establish a solid financial foundation for your new life together. As long as you both agree on how to go about it, helping your fiance build her credit is a great place to start. It will make it much easier for the two of you to get good terms when it's time to buy a car or get a mortgage.
Working together to build your fiance's credit will also be your first joint lesson in how to manage a major stumbling block that often trips couples up: money. You'll be forced to make spending and saving decisions together and that, in turn, will teach you a lot about each other's attitudes about finances.
As you note, you have to choose between adding your fiance as an authorized user on your credit card and getting a new, jointly held credit card — and, yes, although your fiance's credit isn't great, with your good credit, you should be able to get approved for one.
To help you decide, here are the pros and cons of each option.
Authorized user: As an authorized user on your credit card, your fiance's credit score will get a boost because, when her name is added to your credit card account, the positive payment history on that account will show up on her credit record as well. This is also known as piggybacking, and it will likely have a more immediate effect on your fiance's credit score than if you were to both take out a new credit card together.
The downside? You are personally liable for all charges to the credit account. If your wife-to-be were to rack up high charges on that account, you alone would be responsible for paying them off — even if you never agreed to them. In addition, while being an authorized user on your accounts would boost your fiance's FICO score, other credit scoring models, such as the VantageScore, ignore authorized users. Finally, if you were to later remove your fiance as an authorized user, the positive effect on her credit would disappear, and she'd be back to square one, unless she has taken other steps in the meantime to build her credit.
Joint credit card: With a jointly held credit card, you are both equally responsible for paying off the charges, and joint accounts are counted in all credit scoring models. On the other hand, since it's a brand-new account without a long history of positive payments, the effect on your fiance's credit score won't be as immediate as it would be in the authorized user scenario.
The downside? Even though you are jointly liable for any credit card debt accumulated on the account, that won't help much if the other party doesn't have the funds to pay the balance. What sometimes happens when couples split up is that, if one person doesn't have the money to pay his or her share of the debt, the other party on the account ends up being on the hook for the full balance.
While that scenario might not ever apply to you, it's a good idea to get to know each other really well before sharing anything financial in general, and credit cards in particular.
So which is your best choice? You may be best served by a two-step approach. Add your fiance as an authorized user to your credit card for a short period of time, say 6 to 12 months. Once her credit score has improved, she can apply for her own credit card — one designed for people with fair credit, and then use that to continue to build her credit.
Of course, getting a credit card is only the first step. The next is developing good credit management habits together. So when you add her as an authorized user, the two of you should also develop some common guidelines for how you want to manage the credit card account.
Do you want to pay the balance off in full each month? If so, will your fiance pay off the charges she made in full, while you pay off the charges you made? How will you keep track of who owes what if you carry a balance over? How will you share expenses on big-ticket items such as furniture or appliances?
Sharing a credit card can be a great way to start talking about these things — and will give you some practice in handling any financial speed bumps down the road.
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