 In
marriage, good credit can heal bad
|
 Dear
Bankruptcy Adviser,
I filed for Chapter 7 last year and it was discharged in December
2004. I got married in June 2004 to a man with great credit. I want
to start over establishing better credit. If we get a credit card
or loan "jointly," will my bad credit affect his good
credit in ANY way? He is hesitant to even get a joint bank account
with me for fears of me lowering his score. I have no idea where
to go from here! Please help!!
-- Lacey
 Dear
Lacey,
Congratulations on your financial fresh start and your recent
marriage. As a wedding present, I have only good news for you. In brief, you and
your husband are likely to have great success in re-establishing your credit --
if you work as a team.
Let's start with the solution: Have your husband co-sign with you
on a new credit card. Start with a small limit ($500-$2,000). Because
your credit is low right now, the interest rate will be higher than
it would otherwise be if he applied alone and lower than it would
be if you applied alone. The situation you want, initially, is one
in which he maintains a credit card for his use and he co-signs
a credit card for your use.
Use this card each month, and pay it off in full. This way the interest
rate won't matter. After six months, request a limit raise from
the bank. The only way your husband's credit score can be affected
by co-signing with you is if you both default on the contract, that
is, if you both refuse to pay off your balance.
After a year, apply for a card of your own and repeat the process.
Pay your monthly balances, and every half-year, request a limit
increase. If you default on this contract your husband's credit
won't be affected at all. It is worth noting that if you and your
husband live in a community property state, such as California,
he is ultimately going to be responsible for any debt you incur,
but that even in this case, creditors rarely go after a nondelinquent
spouse. Additionally, if you ever decide to establish a joint checking
account, that will not affect his credit either because banks do
not report checking account activity to the credit bureaus.
The issue right now, however, is not how the two of you will share
a theoretical debt, but whether his good credit can "catch
cold" from your bad credit.
In short, the answer is no. Each of you has a separate history with
the credit bureaus and, therefore, a separate credit score. At the
same time, if your husband doesn't help you establish good credit
he could suffer as a result. For example, if he does not have sufficient
income by himself to purchase a home, he will need you to co-sign
in order to qualify for a mortgage. Your income and your credit
score may be crucial in qualifying for a lower rate -- or even getting
the mortgage at all. This Bankrate calculator
can help you determine how much house he can afford on his own.
If you apply together, you should list him first on the loan application
so that his credit history is the first one the lender reviews.
A marriage is a financial alliance,
Lacey, and you two are a team. Luckily for both of you, if you work together,
communicate openly about your finances and pay bills on time, his good credit
will heal your bad credit -- not the other way around.
Justin
Harelik is a practicing bankruptcy lawyer in the Los Angeles office of Price Law
Group. To ask a question of the Bankruptcy Adviser go to the "Ask
the Experts" page, and select "bankruptcy" as the topic. |
