5 Red Flags In His Credit Report

by Mary Humphreys, NextAdvisor.com

In the run-up to your wedding, there are a lot of decisions that need making. Will you hire a band or a DJ? Can you seat your siblings together or is that a recipe for disaster? Do you want chocolate or vanilla cake? But in this storm of practical details, there are also some serious issues the two of you should settle about your marriage.

According to a 2012 survey by the American Institute of CPAs, financial issues are the single most common source of arguments between American couples. If you or your partner have had problems with credit (or even if you just don’t know much about your partner’s financial history), it can be tempting to avoid the difficult questions, but since credit is a vital part of modern life, it’s critical that you have that tricky conversation before you tie the knot.

Why Your Spouse’s Credit Really Matters

After you are married, lenders will use both you and your spouses credit scores to determine if you are a suitable candidate for a loan, credit card or mortgage, so making sure both of your credit reports are clean is key. Also keep in mind that although both of your credit reports and scores will show any accounts you hold together, you and your spouse will not share a credit report when you are married, so you will each have an individual score. Debt that you or your partner enters the marriage with will remain the sole responsibility of the partner who took on the debt. If your partner has a lousy credit score, it may impact your financial future in a very real way.

How to Talk About Credit With Your Partner

It may be helpful to get a copy of each of your credit reports and sit down to take a look at them together. In fact, the National CPA Financial Literacy Commission strongly recommends doing just that before you get married. Full financial disclosure and regular conversations about your credit and financial pictures can go a long way toward a positive relationship around money issues. Checking your credit report regularly can also help you understand what factors banks look for when making decisions about loans and how your actions can affect your credit picture.

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Here are a few things to be on the lookout for in your partner’s credit history, starting with the small beans and working up toward serious red flags:

1. Your partner doesn’t have a credit history: To have a good credit score and qualify for the best rates, you need to have proved that you can handle credit. If your future spouse hasn’t built any credit, that may make it harder for the two of you to qualify together.

What to Do About It: Not having a credit history is a bit of a problem, it’s relatively easy to fix. Encourage your partner to begin building credit by responsibly using a credit card to make the purchases he or she would make anyhow. If they can’t qualify for a credit card, try applying for a secured credit card, which requires a deposit but is easier to qualify for. Make sure the secured credit card reports to all three credit bureaus. Paying off a card each month on time will help build up a strong history. And on the up side, at least you won’t start off your marriage paying down big debts!

2. Your partner has missed a lot of payments or frequently makes late payments: Missing payments or making late payments can indicate that someone is not making responsible use of credit, and will definitely have a negative effect on your future spouse’s credit score.

What to Do About It: This is a bit more of a concern. Continuing to make late payments or miss payments can be a big problem if you open joint accounts, since they’ll affect your credit, too. If the issue is forgetfulness, you and your partner can set up automatic payments for most accounts. If the issue is too much debt, consider setting up a budget and planning ahead to make the payments a priority or negotiating with lenders.

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3. Your partner is close to his or her credit limit on a number of cards: Your credit score takes into account your credit-to-debt ratio, the ratio of how much of your available credit you are currently using. If a consumer is using almost all of his or her available credit, this may indicate to a potential lender that the consumer is over-extended or likely to be over-extended soon. Therefore, they are a risk for the lender.

What to Do About It: Work together to establish a plan to pay down your partner’s debt. However, when we talked to Dana Vince, a licensed Professional Counselor and her husband, financial coach Dean Vince, they recommended “that couples wait until they are married before co-signing on anything and before contributing to the payment of one another's debt.”

4. Your partner has one or more accounts in collections: Having a debt go to collections is not a good signal to future lenders about your partner’s history of paying off debt.

What to Do About It: If your partner’s credit report shows accounts in collections, now’s the time to get in touch with the collection agencies and negotiate a way to settle those payments. Be aware, however, that settling an account in collections will not remove it from your credit report; that information will remain on the report for seven years. This is a pretty serious problem for your partner’s credit report, so consider carefully if you’re planning to open a joint account or apply for a loan together.

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5. Your partner has gone through a bankruptcy: A bankruptcy will have a very serious effect on your partner’s credit for up to 10 years. It’s also a sign that he or she has had serious trouble managing credit before, so if your partner’s had a bankruptcy, that’s a signal that you should have a serious conversation about what happened and how the two of you will prevent similar situations in your financial future.

What to Do About It: According to the Vinces, “There needs to be accountability by both partners when looking at their financial future. So if one partner has debt or bad credit due to irresponsible behavior, not only does the financial picture need to be addressed but the behavior as well so it doesn’t continue on into the marriage.” A bankruptcy in the past is a serious red flag, so be sure to have a detailed conversation about the circumstances and behaviors that led up to it. You may want to enlist a professional counselor to help you both have the conversation fairly. 

How Else Should You Prepare?

In addition to having a detailed conversation about your financial histories, goals, and plans for the future, Dean and Dana Vince also recommend that couples start good habits right away by setting up a budget with room for fun money, paying debts, and investing for the future. 

Signing each of you up for a credit monitoring service can also help, since it will give you an ongoing picture of both of your credit reports and how any efforts you’re making to improve them are going. Most credit monitoring services also provide credit scores as well as “what-if” tools that can show you how much effect various actions like making larger payments, opening new accounts, or paying off a card completely will have on your credit score. Some services even offer credit monitoring for married couples.

Secondly, know that when you get married, your credit and debt from before the marriage remains separate. Depending on the state you live in, debt you enter into after your marriage may be both of your responsibilities. So having a detailed, thorough conversation before you get married about how the two of you will handle your financial lives can be time very well-spent. If you’re concerned about your future spouse’s ability to improve damaged credit over time and maintain payments on possible joint loans in the future, think carefully about whether you want to merge your financial lives by getting married.

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Mary Humphreys is a Content Manager for NextAdvisor.com, a consumer information web site based in San Francisco, CA. Mary has lived in the Bay Area for seven years and holds a BA from Stanford University. A writer since finishing her first book at age 6, she currently covers credit services, credit cards, identity theft and other financial categories for NextAdvisor.com.

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