In an ideal world, you and your spouse share similar financial goals— or at least know how to compromise. It is often true, however, that opposites attract. So what happens when you have very different credit histories? How much risk do each of you take when it comes to your credit?
If your credit is great and your partner’s isn’t, you can relax a bit. When you get married, you and your spouse maintain your own separate credit histories. Marriage doesn’t merge your credit reports.
That doesn’t mean your credit is 100% safe from your spouse, though. Unfortunately, there are ways he or she could do some serious damage to your credit scores. Here are four of them.
1. Saddle You With Debt
You generally aren’t responsible for debts your spouse incurs in his or her own name. But that doesn’t mean it never happens. If your spouse incurs debt after you get married and you live in a community property state, those individual debts still won’t appear on the your credit reports; but the debt could end up being your responsibility if you later split up. And if your partner incurs debt due to medical care for themselves or for any children you have together, you may wind up responsible for those debts, depending on state law. If those medical bills go unpaid more than 6 months, they may wind up in collections and could end up on both individuals’ credit reports.
The more likely way you’ll end up with your spouse’s debt is if you open any joint accounts together (or you cosign for one another). In that case the accounts will appear on both your credit reports and you’re both legally responsible for the entire balance, regardless of who made the purchases. If you add your spouse to one of your credit card accounts as an authorized user, you are fully responsible for that debt and since it is your account, those balances will appear on your credit reports.
High balances on credit cards in particular can significantly lower your credit scores. They result in a credit score factor referred to as “high debt usage,” and it’s the second most important factor when your scores are calculated.
2. Miss Payments on Joint Bills
He gets ticked off at the cable company and refuses to pay the bill. Or it’s an especially busy month and she accidentally overlooks the mortgage payment. If those accounts are in both spouse’s names, then both are likely to see a late payment appear on their credit reports. The biggest risk is when one spouse is left out of the loop when it comes to paying the bills. By the time he or she discovers there’s a problem, the damage credit-wise may already be done.
Payment history is the number one factor that impacts your credit scores. If you have a high credit score a single late payment may drop your scores buy 50 to 100 points overnight. While your scores can recover, it will take a while and in the meantime, you’ll be reminded of the slip up anytime you apply for credit or check your credit.
3. Steal Your Identity
Your spouse probably knows a lot about you, including your social security number and personal details that would make it easy to “borrow” your identity and open new accounts in your name. Over the years I’ve heard numerous stories of spouses who learned they were tens of thousands dollars in debt on accounts their husband or wife opened behind their back and then hid. One even managed to buy a home by getting a mortgage under her ex’s name without his knowledge!
4. Bring Your Business Down
Going into business with your spouse may seem like a grand adventure, and perhaps it will be. But if things don’t go well, you could end up with serious damage to your business, including your business credit. A spendthrift spouse could run up debts your business can’t afford to pay. Just like with personal credit, high levels of business debt or late payments can bring down your business credit scores. A divorce could force you to close the business or try to sell it, but if the business has poor cash flow or damaged credit that may be difficult, if not impossible.
One of the simplest things you can do to help protect yourself is to monitor your credit on a regular basis. There are more than 150 places where you can get your personal credit scores for free so there’s no reason you can’t stay on top of it. If you’re a business owner, you’ll also need to monitor your business credit reports and scores. You can check your business credit free with Nav. If you suspect your spouse’s spending habits are going to create problems for you, then you may want to avoid opening joint account, co-signing, or adding him or her to your credit cards as an authorized user. You may also want to freeze your credit report or at least placed fraud alerts so that you are notified if he or she tries to open an account using your personal information. You can’t freeze your business credit, however, so monitoring it is critical.