Question: How Are Credit Scores Calculated For Married Couples?
Answer: The basic question is easy to answer. There isn't a credit score for married couples. You each have your own credit reports and your own credit scores.
But that doesn't mean there aren't a few things to keep in mind to protect your credit. For instance, if you have joint credit card accounts, you have the ability to ruin each other's credit. With a joint account, you're both liable for any charges on the credit card. So if your spouse goes on a shopping spree and puts $1,000 on the joint credit card, you're equally liable for the debt.
A large balance can also cause another unfortunate situation. If the card's balance starts to rise above 30 percent of the credit limit on the card, you could experience a drop in your both of your credit scores.
This is because your credit utilization ratio, which is the ratio of the credit you've used compared to the credit you have available, is climbing. So the bottom line is, with a joint account, you can enhance each other's credit or drag each other down into the low credit score range.
If you do have a joint account, have an honest talk with your spouse about how much should be put on the card and what types of expenses will be put on the card. Also, decide who's paying the bill. A missed payment or two will also drag down both of your scores. Communication is key so you're both on the same page. I know many couples who have weekly money meetings to make sure they stay on top of their finances. That way, there are no big surprises.
Another common problem with joint accounts is that this can become a sticky situation in the event of a divorce. I hate to sound cynical, but these days, it's something married couples need to factor into their financial decisions. Again, you each have the power to destroy the other person's credit. With divorce, there's often anger and I've seen many people have their credit ruined by a vengeful spouse. If you think you'll be divorcing, take steps as soon as you can to avoid an issue with your joint accounts.
A way around these possible pitfalls is to each have your own credit card account. It's really quite important for each of you to develop your own solid credit history. You can each be authorized users on the other one's card, if you wish. If there were to be a divorce, it's easy to drop an authorized user, in most cases.
Now, I say "in most cases" because this is a little vague in community property states because they view legal responsibility for debt differently, so consult with a lawyer to know where you stand if you live in one of the following states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is a bit different. A couple can sign an agreement that makes their assets community property, if they wish to do so.
Again, I hope I don't sound like a pessimist! But I get questions every week from one half of a divorcing couple asking what to do about the joint account after it's been abused and there's a large amount of debt. So I just want to make sure you know your rights so you can be proactive and protect yourself.