When many Americans get married, they are likely to begin opening joint accounts that both they and their spouses can use together, but doing so may actually come with a number of pitfalls. If one spouse in any marriage has a good credit score, and the other's is somewhat diminished, then the latter will necessarily effect the quality of that account.
The simple fact is that the better the credit score any person has when they apply for a line of credit will not only allow them to qualify (or not) for that type of financing, but also be used to set the terms of the account, such as the interest rates or any ongoing fees associated with it. That, in turn, determines how affordable the account will be, because rates and fees can certainly affect a person's bottom line.
And when it's a couple applying for joint credit, as one might expect, lenders simply tend to take the average of both individuals' credit scores. That can be beneficial to those whose credit isn't exactly great, because their partners' might be somewhat higher. But for the person who has a good credit score, such an issue can significantly alter the cost the account carries going forward, often for the worse.
Why is this the case?
Simply put, the lower one's credit score — or, in the case of couples, the average of their scores — the less affordable the account will likely be. Those with low credit ratings can expect to pay higher interest rates and more fees than those whose scores are good, and as such these accounts might come with terms the spouse with better credit might find distasteful.
This can be important when couples apply for credit cards, for instance, because, as these accounts tend to already come with higher interest rates than almost all other types of credit, having more costs associated with them may pose a significant problem going forward. That means that every dollar they carry as a balance from one month to the next will have a larger impact on their bottom line as a couple, and that can quickly endanger more aspects of their finances. This is true, as well, because the added annual fees or other additional charges can sometimes be quite costly.
However, one aspect in which many couples might have even more trouble if one spouse has a low credit rating is when they try to buy a home together. That's because while it's relatively easy to jointly obtain other types of credit these days — such as credit cards or auto loans, among others — the mortgage lending conditions currently in place nationwide may disqualify even those couples who have credit scores that are just slightly less than optimal, which may complicate their future plans significantly.
How to improve a couple's standing
For those couples hoping to improve credit in general, it might be a good idea for both to undergo some basic credit repair steps, rather than put the burden of improving specifically on the spouse whose score is somewhat, or in some cases drastically, lower. The best ways to improve scores is to tackle two factors in particular: Payment history and the amount of debt being carried.
The ability of consumers to make payments on time and in full every month accounts for 35 percent of their scores, making it the single largest portion of their ratings. When people miss any payment, even by a single day, their scores can take huge hits as a consequence, and the only way to smooth this over is to make continued on-time payments for a period of several months or more. The longer this goes on, the better off their scores might be.
Meanwhile, when making those on-time payments, they should also be trying to make larger ones. This is because the amount of debt they carry versus their total available credit limits makes up another 30 percent of their ratings. In general, lenders want to see consumers carry 30 percent of their total limits, or less, to make sure this portion of their scores are maxed out. Thus, making concerted efforts to cut into these balances as a couple will improve both individuals' standings, which in turn makes their joint rating much better, and puts them in a far better position to borrow affordably going forward.
Of course, married couples should also take the time to closely check over their individual credit reports and determine whether any unfair markings may be listed on these documents. If any are discovered, it might be wise for them to contact a credit repair law firm as a means of helping to make sure the issues are remediated as soon as possible.