Depending on when you get married, you may already have a well-established credit life – or none at all. So do you need to hurry to merge your credit life with your spouse’s? And is it OK to maintain some separation?
“When it comes to credit, newlyweds need to start by treading lightly,” says Kelley Long, CPA, financial planner and member of the National CPA Financial Literacy Commission. “Don’t jump into combining your credit before at least taking a look at a few things.”
How marriage merges your credit
After you’re married, you and your spouse will still have individual credit reports and scores. But once you open joint cards or apply for loans together, your credit lives can become entangled in the following ways:
- Joint accounts: Shared credit obligations (joint credit card accounts and joint/co-signed loans) become the responsibility of both parties; any late payments and delinquencies show up on both credit reports.
Shared accounts can also intertwine your credit in more unexpected ways. Long, for example, took out a mortgage with her ex-husband. Today, that account is closed. Yet, because her ex-husband set up mail forwarding from the address they once shared, his subsequent addresses have popped up on Long’s credit report – and sometimes in credit-report-based security questions.
“It screws up things when you apply for credit and they ask you questions like ‘Which of these streets have you lived on?'” Long says. “If I say none, but one of them was one of his streets, I fail [the security test.]”
- Authorized-user ties: Whether an account disappears from your report after you’ve been removed as an authorized user varies by credit bureau. In some cases, if you aren’t proactive, that account can linger.
- Shared debt: In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), debt undertaken by either party during the marriage is divided in half upon divorce. Even in states without such laws, debt will likely be divided up by the judge in the event of the divorce.
Should you combine credit cards?
Just because you’re combining lives doesn’t necessarily mean newlyweds have to rush to combine credit cards.
“It’s about finding a way to merge your finances and being practical,” says Elle Martinez, owner and editor of the website Couple Money and host of the podcast of the same name. “I would say the eventual goal is to have joint accounts. But the realistic way you have to look at it is, ‘Where are we starting out now?’ ”
Sharing credit cards does have perks for married couples, Long says. You can double your rewards-earning power, and it’s simply more convenient.
“You don’t have to say, ‘I paid for groceries last time, and now it’s your turn,’ ” Long says.
However, shared responsibility can unintentionally lead to divided attention.
“When you have two people using a card when they need to use it, you can quickly run out of money to pay it off,” Long says. “If, as partners, you don’t have a lot of discipline in keeping track of those things, you might shy away from having a joint card for everyday spending.”
Even if you do share a card or two, it can be smart for each spouse to have a card of his or her own – similar to how members of a couple might have a certain amount of “fun money” to spend as they like.
“There are always going to be expenses that aren’t going to hurt your budget,” Martinez says. “They’re your little things. My husband is someone who will save up for electronics, while I’m more about experiences like weekend trips with the girls.”
Just keep your spouse in the loop, Martinez says. Even your name is the only one on the account, you owe your spouse regular updates about the balance and payments.
If you do want to merge cards, you have two main choices: joint accounts (where responsibility is shared) or authorized-user scenarios (where only the main account holder is responsible for payments).
So which is better?
If one spouse has a useful, long-standing card with good rewards, consider adding the other spouse as an authorized user, Martinez recommends. If not, consider opening a new account together that has a good rewards program.
Before you open any new cards as a couple, though, make sure you discuss any debt on the pre-marital cards.
“You may find out your husband-to-be has $5,000 in credit card debt and is just making the minimum payments,” Martinez says. “So maybe you decide to pay off that debt together before you open a joint card.”
Loans lead to bigger questions
Mortgages and auto loans are more complicated than credit cards. For one thing, they’re often for large amounts of money and are paid off over many years. For another, one spouse with poor credit can derail the chances of getting the best interest rate, resulting in thousands more paid over the loan’s duration. Just look at the estimated APRs for a 30-year fixed mortgage, based on FICO score range, to the right.
So should the spouse with good credit apply alone?
Martinez says no.
One person carrying entire credit load can lead to resentment, she says. Plus, one spouse’s low credit score should give the couple pause before they embark on huge credit commitments.
“Get both of your credit situations under control before you start talking about loans,” Martinez says. “If you have a partner who has a problem with keeping up with credit obligations, a loan is going to add more headaches. Just the process of going for a mortgage will require both people to be on top of things.”
But what if your car breaks down and you need a new one right away? Martinez suggests going for a smaller, joint loan (and paying a larger down payment).
“I would go with a smaller loan rather than having just one person on the hook,” Martinez says.
Long, meanwhile, takes a different approach when it comes to mortgages.
“In the long run, there’s no way to avoid combining your stuff with your spouse,” Long says. “But, from a practical perspective, when you’re first starting out, you might want to keep things separate until you’re both on equal credit footing.”
So, if one spouse has better credit and can snag a better rate by applying alone, they should go for it if the goal is to own a house as soon as possible.
“Before you go all in together, just go with the person who has good credit and see what you get,” she says. “If you keep everything in that person’s name and allow the other person time to repair their credit, you can eventually apply for something together.”
The downside is that you won’t be able to include the other spouse’s income in the loan application. Although that likely means you won’t be able to get as big of a mortgage, that’s preferable to getting a larger loan with a higher interest rate, Long says.
As for one partner resenting the other, she says, couples should know that, in the event of a divorce, the debt would likely be divvied up by the judge – so the person whose name is on the loan wouldn’t likely be saddled with all of it. To ease any remaining misgivings, “have a very frank and honest talk,” Long says. “Make sure you both understand that it’s a joint responsibility, even though the bills are coming only in one person’s name.”
Because auto loans are generally shorter in duration than mortgages and for smaller amounts, couples have less to lose by going in together, Long says. If one person has bad credit and needs a car, it may make sense for the partner with good credit to co-sign the loan.
How to work it out
What works for one couple won’t work for another – and may not even work for you over the course of your entire marriage. If something isn’t working, Long suggests, give it six months and reassess.
“Don’t let anybody tell you, ‘If you don’t combine everything, your relationship is not going to last,'” Long says. “It’s perfectly fine to start out separate and work your way in to a more combined credit relationship. Just like you start out with your lives separate and slowly work them together.”
The first step in determining a credit strategy, Long says, is to pull both parties’ reports and go over everything on them. Because talking about credit can be intimidating for many, Martinez suggests keeping the first credit talk low-key.
“You don’t have to jump into all the numbers right away,” she says. “… I think a lot of people dread having that first money talk because they make it such a huge deal.”
While couples may designate one person as the “point person” when it comes to managing credit, it’s necessary to have regular brief talks (or, as Martinez calls them, “money dates”) to make sure both parties are equally engaged and informed.
“Having a regular money chat takes the pressure off the point person,” she says. “It keeps both people accountable and protects both parties.”