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7 steps: When good credit marries bad

Allie Johnson

January 6, 2015

You promised to stick together for richer or poorer, better or worse. But what if your vows are put to the test when you learn your new spouse has bad credit?

“It's a common challenge, and one many are not thinking about as they take their wedding vows,” says Edward Coambs, a financial therapist and founder of MarriageandMoneyMatters.com. “Most people are just focused on enjoying each other and being happy.”

There is good news, though: Your other half's poor credit won't hurt yours directly because credit reports are individual and don't even include your marital status.

But that doesn't mean his bad credit is not your problem: It will affect his ability to obtain a credit card, how much he pays in interest when he gets a car loan or your quest to borrow if you want to buy a house together, says credit expert Daniel Sater of CreditScoringAdvisor.com. Your spouse's bad credit can affect auto insurance rates, renting an apartment, even his ability to land a job. Coambs agrees: “Once you get married, it's a couple's problem.”

But don't fret or fight — instead, fix the problem together. Here are seven steps to take when good credit marries bad:

1. Look at each other's credit reports. Pull your credit reports at AnnualCreditReport.com, purchase your FICO scores at MyFICO.com and go over them together, Sater recommends. Ideally, you want your FICO scores to be at least in the low 700s (FICO, the dominant scoring model, rates from 300 to 850, with 850 as the best).

“Go over each item, line by line,” Sater says. If you find errors, dispute them with the major credit bureaus, TransUnion, Equifax and Experian. Sater notes a 2013 Federal Trade Commission report found that one in five consumers has an error on a credit report.

2. Have a money talk with your honey. “Don't just launch into a discussion,” Coambs says. Set up a time for a nonjudgmental heart-to-heart. “Get a bigger picture of how each of you understands money and why,” Coambs says. “Credit is a small picture of the overall puzzle.” Find out what led to the credit issues — for example, was it one catastrophe such as job loss or illness, or is there a pattern of mismanaging money?

3. Assess your finances and create a plan. Gather your financial records and look at your regular bills, your savings, your debts and interest rates, Coambs says. Put your financial details in black and white, whether it's old-fashioned pen and paper, a spreadsheet or a tool such as Mint.com, he says. Using the information you've compiled, make a roadmap for how you'll take steps to manage your money together and improve your spouse's credit, says financial counselor and coach Susan Bross. Create a budget for making sure all bills get paid on time and debt gets paid down. Both steps will help build your spouse's credit.

The spouse who's handled money better should resist temptation to take over all financial tasks because the other spouse won't develop better financial skills and knowledge, Coambs says. During this process, consider meeting with a money pro such as a financial therapist or a fee-only financial planner, Bross says. It can be a lot easier to hear news about your finances from an outsider, she says.

4. Give your spouse some credit. Consider adding your new husband or wife to one or more of your credit cards as an authorized user to give them a credit boost. “They're basically borrowing your credit history,” Sater says, adding that you can remove them from the account at any time.

And, if you have any doubt about his ability to use the credit responsibly, you don't have to hand over the actual card, Sater says. One word of warning: Don't open a joint account with a spouse who has bad credit because it can damage your credit if your spouse manages the account poorly, Sater says.

5. Check credit regularly. Look at your credit reports and scores every four months while you're building credit. You are allowed to pull your credit reports for the three major credit bureaus once a year for free. Set up a schedule in which you can check one credit report per person every four months on a rotating schedule at AnnualCreditReport.com.

6. Keep working to fix the bad credit. Helping your spouse get from bad to good credit takes time. One more option for a boost: Consider a passbook loan from a credit union — a credit-building loan where you borrow against your own savings, Sater says.

Once your spouse's score reaches 650 or so, she should start getting credit card offers, he says. Credit cards are the fastest way to build credit. For credit building, it's best to get a card with a limit of a least $1,000 if possible, he says.

7. Wait to make big purchases. If possible, postpone buying a home or car until you both have good credit. If you don't, and the good-credit spouse takes out the loans, it can load him with debt and pull down his score, Sater says. “The person with bad credit will drain the person with good credit,” he says.

And, if the spouse with bad credit gets, say, a subprime car loan, costs can be steep: For example, bad credit can cost you $9,000 extra over the life of a five-year, $20,000 car loan, Sater says.

While a consumer with shaky credit might be able to get a good rate on a Federal Housing Administration loan, you typically need a score of at least 700 to get a good rate on a conventional mortgage, Sater says. “With a mortgage, you really want both partners together on it,” he says.