Your Credit Score is a numeric representation of your creditworthiness, and it is evaluated when applying for a Loan or a Credit Card. As of today, several banks reserve their lowest interest rates to customers with a credit score of 750 or more. Customers with lower scores may have to pay a higher interest rate or even face rejection.
A credit score reveals many aspects of a person’s financial record such as his need for credit and his repayment habits, and it reflects his general sense of financial discipline.
Married couples generally have separate credit records. However, once married, couples may take joint loans. In such cases, credit records are generated in the name of both account holders and both scores are looked upon to determine eligibility for future borrowings.
Should You Worry About Your Spouse’s Credit Score?
When you seek a hefty loan such as a Home Loan, and your individual income happens to fall short of the eligibility criteria, introducing your spouse as a loan co-applicant can increase your borrowing potential. Banks and financial institutions usually look at the credit records of both husband and wife when there is a joint loan application, and if either of the spouses has lower than requisite credit score, it may lead to a rejection of the application.
Other than the collective credit score of a married couple, the aggregate score could also be looked upon in order to determine the interest rate. If the aggregate score is on the lower side, the interest rate is typically higher.
If your spouse has a poor credit score, the burden of taking loan may be falling on you too often. Eventually, you might exhaust your financial leveraging capacity with all loans piling individually on you. You would be at a higher risk of lowering your Credit Score with any instance of delayed payments or defaults. If your spouse has been a serial financial offender, it may also easily spoil your credit profile.
Once a couple takes a loan together, in case of a default, irrespective of whose fault it is, both will bear the brunt of it.
It is important to play a constructive role to help your spouse out of financial distress. And the first step towards it is, to mutually disclose financial positions before marriage. You can take corrective measures once you know about each other’s credit records.
If you have a healthy Credit Score, you can include your spouse in your Credit Card account as a joint holder to improve his/her Credit Score through strict financial discipline. You can also apply for loan of a small amount as a co-applicant with your spouse to build a strong Credit Score for the future.
You can also help your spouse get a secured Credit Card by depositing the requisite amount as a collateral. With disciplined use of a secured Credit Card, your spouse can improve the Credit Score to a certain extent.
If the credit history of your spouse is erratic, you can open an account keeping him/her at a low-debt or no-debt profile, so that the Credit Score does not affect your individual and collective credit record in future.
Poor Credit Score of your spouse may not impact your individual credit record if you maintain a separate record, but, with a strong collective score, you will have improved your borrowing potential and thus your combined financial strength.
(The writer is CEO, BankBazaar.com)