Monday, November 23, 2009

How bad credit affects a new marriage

Protect your new spouse from your past credit mistakes

By Sally Herigstad

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).

Ask a question.

To Her Credit archive

Question for the expert

Dear To Her Credit,
A year before we got a divorce, my ex-husband had our house foreclosed on. We ended up having to file for joint bankruptcy. Thanks to my ex's shenanigans, my credit score is about as bad as it can get.

I'm dating someone now and would like to get married, but I'm worried about messing up my new husband's credit. Will my irresponsible ex's problems get dragged into my new marriage? -- Lora

Answer for the expert

Dear Lora,
Wow -- a foreclosure and a bankruptcy. One or the other is bad enough. In fact, people often go through bankruptcy to help them avoid foreclosure. Bankruptcy often allows you to keep your home, plus it may eliminate other debts so it's easier to keep up with your mortgage payments.

Of course, if your ex was irresponsible as you say, he wasn't exactly seeking the best advice, let alone taking it.

So here you are now. Thank goodness for second chances.

First the good news. "If you marry, it's not going to hurt his credit score," says New York bankruptcy attorney Edward E. Neiger. There's no such thing as a joint credit score, and the negative items from the past on your credit history cannot somehow work their way over to his report just because you marry.

Now the not-so-good news: Any time you and your new husband apply for credit together, your credit history will affect you both. Say you want to buy a house together. "If the banks require two incomes to qualify, he might not be able to buy the house," says Nieger.

It's not the end of the world, however. If you've already told your husband about your financial struggles, he won't be shocked. And although it may be more difficult for you to buy a house, it's not impossible. People who have bankruptcies in their past buy houses -- they may need to save a little longer and work on building their credit histories for a year or two, but it can be done.

When you remarry, remember these points to protect his credit and start improving yours:

  • Do not add your new husband to any old accounts with a negative history -- not even as an authorized user. You don't want these accounts to show up on his credit report.
  • New joint accounts with you will not hurt his credit as long as the accounts are always paid on time.
  • He can help you improve your credit score, without hurting his own credit, by adding you to his current accounts as a joint account holder.
Perhaps one of the most important things you and your intended can do as your relationship becomes serious is to start communicating and learning about finances together. You could take a class at a local community center or library, or find books or courses online. You may both be financially literate already, but going through a course gives you an opportunity to talk about expectations and goals in a way that isn't likely to come up otherwise. It's so important to understand each other, your financial styles and where you want to go with finances before the wedding!

Congratulations on your new relationship. The man you are dating sounds great -- people who are responsible financially tend to be responsible and dependable overall. I wish you both the best of everything!