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Marriage and Credit: Join Lives, not Accounts!

Most people approach marriage and credit with a one-for-all, all-for-one attitude. They open joint credit cards, apply for car loans as a couple, and stop building separate credit histories. After all, they have joined their lives together; why not marry their credit histories?

Though the sentiment is appealing, keeping some credit accounts separate has big advantages. Holding credit jointly puts a couple at even greater risk during times of financial crisis. Here are two common credit pitfalls of marriage.

Pitfall #1: Joint Credit Cards and Automobile Loans

Let’s imagine what would happen in a typical household by considering Jack and Jill, a married couple with joint credit cards and joint automobile loans.

Jack lost his job, so the couple is trying to make ends meet. After a couple of months, they start realizing that they cannot afford all of their bills. So they stop making payments on several credit cards and on one of the two car loans. The credit card bills are sent to collections and the car is repossessed.

And both Jack and Jills’ credit scores are in the trash.

Now let’s see how the same situation would play out with Peter and Paula, a married couple with separate credit cards and automobile loans.

When Peter loses his job, the couple creates a strategic plan about their forthcoming financial problems.

Peter and Paula know they can only afford to pay all their bills for three months; the money will run out after that. Peter searches high and low for a job, but is unsuccessful. After three months have passed, the couple decides to stop paying credit cards and car loans in Peter’s name. They stay current only on bills in Paula’s name.

Of course, Peter’s credit score suffers. But Paula’s remains pristine. This means that Paula is able to apply for loans in her name, while Peter learns how to rebuild credit.

Opening all loans jointly is among the biggest credit-scoring mistakes a married person can make. Let’s take a look at another one.

Pitfall #2: Holding All Credit in One Spouse’s Name

Opening all credit cards and loans in one spouse’s name is another big no-no for married couples.

This usually happens when one spouse works a nine-to-five job and the other stays home with the kids. The spouse with the paycheck opens all credit in his or her name.

But what happens if something happens to the working spouse? A bankruptcy, death, loss of income, or divorce would make the other spouse vulnerable. Because no credit is the same as bad credit, the stay-at-home spouse would have no ability to secure a loan.

There’s another problem with this strategy. Let’s switch this scenario up a bit and imagine that both spouses work. The wife has a part-time job with a small salary, so all of the credit is in the husband’s name. The couple decides to buy a home. To qualify for a loan, they need both spouses’ income.

The couple now has a big problem: The wife has no credit history, so her score is low. Putting her name on the home loan would endanger the loan. And the husband cannot qualify for the loan on his own—he needs his wife’s income for that extra boost.

Most likely, the couple would not qualify for the loan. At a minimum, the couple would pay a higher interest rate.

This pitfall can be avoided if both spouses build their own credit scores.

Philip Tirone is a credit-scoring expert and author of 7 Steps to a 720 Credit Score.

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