When you marry somebody, you vow to have and to hold, for better, for worse, for richer, and for poorer, in sickness and in health…
But the declaration does forget one important detail - it doesn’t give you any instructions on how to protect your credit when you marry into debt!
Married couples generally maintain two separate credit records and histories, and so your spouse’s credit history will not directly affect your own individual credit profile. However, if your spouse is acting irresponsibly and is failing to keep up with their debt repayments, it is possible that you will also suffer financially if you have a joint account or have combined your finances in some way.
In these circumstances, there are several actions you can take to protect your credit which I have discussed in more detail below.
1. It’s Time To Have ‘The Talk’
Talking about finances with your partner can be a touchy subject. So how do you know what the boundaries are when it comes to talking money, and how deep should you delve into one another’s financial pasts?
Well, if you’re deciding to spend your whole life with someone, you should know exactly what each other’s financial situations are so that you have a clear idea of where you stand financially, as a couple.
So, what exactly is ‘the talk’?
Whilst I would suggest that this conversation is something that should happen long before you put a ring on it, don’t rule it out - it’s never too late to discuss it!
Financial strains on a marriage is a leading cause of divorce, even before work stress and lack of quality time spent. Lawyers have even gone as far as dubbing the first working Monday of the year as ‘Divorce Day’. This is due to the increased number of people seeking to file for divorce as a result of the financial stress of Christmas and the New Year.
Discussing your credit score, financial aspirations, and expectations with your partner is imperative in determining how financially compatible you are. This is a precaution you should always take so that you can assess whether you need to take steps to protect your credit. If you haven’t already, be sure to check out each other’s credit report with Equifax today.
By discussing these things, you can take time to understand each other’s finances. You can also make accurate financial goals and plan your budgets accordingly so that your credit remains in tip top shape!
2. Know When You’re Accountable For Your Spouses Debt
Some couples automatically assume that they are responsible for their partner’s debts after they get married – but this is not always the case. It is only when you do the following things that the information will be noted on both your reports:
• Apply for joint credit
• Co-sign a contract
• Give permission for your spouse to be an authorised user of your line of credit
You don’t have a legal obligation to help towards repaying your spouse’s debt if you haven’t done any of the things mentioned above.
3. Avoid Co-signing Agreements
Co-signing agreements mean that you will be ‘co-scored.’ So, if your partner has a poor credit history and is in debt, then this is particularly important.
Regardless of whether you are a primary or secondary signer on the contract, co-signing on any credit or loan agreement means that you are legally agreeing to assume equal responsibility for the terms and conditions of the contract.
Consequently, that particular account will appear on both you and your spouse’s credit report. So, if any late repayments are made, it would result in negative impacts for everyone listed on the loan.
It is crucial, therefore, that you consider the following responsibilities of a joint agreement with your partner before jumping head first into it:
• You are required to make on-time payments, even if you are not the primary signer. The lender does not have to inform you of missed or late repayments; it is your responsibility to take precautions and ensure that you are monitoring your account regularly.
• A lot of people assume that your name can be easily removed from the joint agreement if you end the relationship, but the reality is slightly different. If you have co-signed on a contract, and you separate from your partner, both of your names will still remain on the account.
The majority of lenders will not agree to changing the contract unless certain factors are accounted for. For example, if your partner’s debt-to-income ratio is poor, and the lender perceives risks involved with their ability to refinance the account in their name only, they can refuse to terminate the original joint contract.
4. Do Not Authorise Your Spouse As A User Of Your Credit
Adding your partner as an authorised user won’t directly impact your credit score, but it can cause problems for your creditworthiness.
Authorised users have the privilege of making purchases on your account, all of which you assume full responsibility for. Therefore, if any users exploit this privilege, you can end up with debt you were not prepared for.
What is the difference between a joint account and an authorised user?
The most notable difference between the two is how the responsibility is shared. Joint accounts involve both parties assuming equal responsibility for the management of the account, whereas authorised users do not assume any.
For example, if you and your spouse have a joint account and it is managed poorly, both parties will suffer from negative affects to your credit profile. Whereas, if your spouse has become an authorised user on your account and is irresponsible, it will be your credit that is affected – not theirs.
This is why it is important to avoid this unless you know their money habits and are confident that they will not misuse your credit.
5. Keep Bank Accounts Separate
Managing finances in a marriage is a completely different ball game. Now that you are an official item, you may feel obliged to share everything together - including your finances.
But a lot of couples tend to apply for a joint account without understanding the full implications of having one. What’s more, a recent survey suggests that ¾ of UK adults weren’t aware that each person in a couple are liable to pay the entire debt on a joint account.
What if I told you that having a joint bank account isn’t always necessary, and it may actually cause more harm than good?
As mentioned previously, signing a joint agreement means you will be responsible for the terms agreed in the contract, and the same goes for joint checking accounts. So, why not be safe and separate your bank accounts to avoid your partners debts restricting your financial options?
But, how do we manage separate bank accounts in a marriage?
Having separate bank accounts in a marriage may not seem like the most convenient option. However, not only is it a good way at protecting your credit, it can also help to reduce financial-related arguments and solidify financial autonomy. It has also become a more common option with now 34% of married UK couples deciding to keep their finances separate. If you are looking to open a new current account and need some guidance on which one if the best for you then check out Money’s top 10 current accounts.
There are a few things you should consider doing to ensure that your finances are split fairly, and that it all runs smoothly:
• Allocate Bills
Having separate bank accounts doesn’t mean you can’t work as a team. You can always work out your monthly outgoings together and allocate your bills accordingly. You may decide to take care of the utility bills, whilst your partner can be responsible for the food bills – it’s completely up to you!
• Record Your Expenses
Keeping a record of all of your outgoing and savings is a great way to stay organised and to keep on top of each other’s finances. You can create two different files – one for you and another for your partner. Each record should be based on your individual incomes and should include a system to reflect them both. If you don’t know where to start, consider using Money Advice Service’s Budget Planner.
• Use Remaining Balance As Savings
Having separate current accounts is all good and well, but what about savings? It is probably a good idea to transfer any remaining cash from your separate accounts into a savings account every month. This just means that you can avoid using the cash to feed your impulse buys or individual shopping habits. Instead, you are protecting one another by having some money saved away for a rainy day.
If we already have a joint account, how do I protect my credit?
We all manage our finances differently. This is because we have different needs, habits, and attitudes towards money. So, if you feel it is necessary to open a joint account and that it will work for you, then there are some things you can do to protect your credit whilst doing so:
- Make sure that you trust your partner
It might sound cliché but the saying that ‘trust is the best foundation for a relationship’ isn’t popular belief for no reason. You need to have full trust that they will take your finances seriously and won’t risk putting you in a vulnerable financial position.
- Set boundaries and budget
You should be clear on your expectations. It is important to discuss and record any limitations, budgets, and weekly to monthly expenses so there are no surprises!
- Ensure that the responsibility is shared equally
Opening a joint bank account should mean that responsibility is shared equally amongst the two of you. Regardless of how financially savvy one of you may be over the other, piling the responsibility onto one person is not good for either parties.
- Make sure you and your partner monitor your account regularly
The lender/ provider is not responsible for notifying you when payments are due. Therefore, you must keep a close eye on your account to ensure that you do not miss a payment and that your partner doesn’t either.
Having to talk about things like credit and finances may not be the most romantic or exciting thing to discuss just before you get hitched, but it is important.
That way, you can approach marriage being confident in your financial future and equipped with the tools necessary to make smart choices that will benefit you both.