It has come to many people’s attention that your spouse can actually have a direct effect on your credit rating. Of course, when you fall in love with someone and ask for their hand in marriage or accept a proposal, the last thing on your mind is going to be your credit score. It is not going to be asked at the site of a proposal how the other pay their bills, or whether they are in debt, or generally what their existing credit score is.
This just doesn’t seem important at the time, but it will slowly begin to become so. However, according to a report conducted by Experian, the credit bureau, the research showed that 33% of those they spoke to rated someone being good with their money higher than their appearance when they went about choosing a partner.
It is good to know what financial ties we will have to our partners, spouses and even family members if you share finances and even debt with them.
Co-signing and guaranteeing
If you have a partner or a spouse, at some point your other hand may ask you to co-sign or guarantee a loan for them. Since it is your partner, you may not stop and think, and just go ahead and sign the agreement. However, this will mean that you are as responsible for the loan as they are.
There is a slight difference between co-signing and guaranteeing a loan. Nevertheless, the part you need to concern yourself with is that if your partner fails to pay back their loan when the lender seeks their agreed payment they will come to you. This can seriously affect your credit rating and your credit score.
This information is not intended to put you off ever co-signing or guaranteeing a loan for your partner, but it is good to be aware of how it could potentially affect you. You must know the possible consequences before signing anything.
Furthermore, you must set aside some time to consider why they need a guarantor for their loan. The answer is pretty obvious, your partner is deemed high risk by lenders and therefore you are required to sign to lessen the risk. Ask your partner about their credit score at this point. You would want to know this kind of information is you were going to be entering into any joint debts such as a mortgage when or if you buy a property.
Being financially linked to your partner is not uncommon. You may rent a place to live together, both signing the lease, you may take out car finance together in both of your names and you may buy a home together, taking out a mortgage in the process.
Since you have accounts which are joint, you are both equally responsible. So even if you are very responsible with how you spend your money to make sure your credit rating is good, the other half of the partnership can bring that down just by simply being irresponsible and being linked to you financially.
It is convenient and can be a very good thing to have a joint account, but make sure you are both responsible and keep the communication channels open about all things financial.
What happens if you split up?
Unfortunately, for whatever reason, some relationships and marriages do break down. It can be messy, but it can be even messier if you are linked to that person financially. If you have a joint account or debt or if you have co-signed a loan, their needs to be decisions made as to who is paying what account. If one party decides to stop paying for something, this will affect both of party’s credit ratings.
As much as no-one enters a marriage thinking it will end in divorce, it may be wise to seek a prenup. The only real way to “divorce proof” your money is to not have any jointly held accounts of any kind, or if you do, is to seek that prenup.