 When
good credit marries bad
|
 Dear
Debt Adviser,
I recently got married. I knew that my husband's credit score was
really bad. What I don't understand is why my credit score has now
dropped and all my credit
cards are lowering my limits? I haven't done anything except
get married. How do I fix this?
-- Michelle
 Dear
Michelle,
To start off on a positive note, congratulations on your wedding and for checking out his credit before tying the knot. But, as you have found, when you said, "I do" you also said "for richer or for poorer." Who knew they were talking about a poor credit score? I always thought it was cash! Anyway, now you need to know how to keep "till debt do us part" from happening.
Just getting married is not a hanging offense, but
it is an event that could indirectly lead you to a lower score and
credit limits under certain circumstances. Here's the scoop: Credit
files are legally separate. His bad credit cannot taint your pristine
file unless you have opened joint accounts and payments have not
been made on time. Then the accounts will show on both files as
negative. Payment history accounts for more than a third of your
credit score.
It is also possible that, independently of entering
into a high-credit-risk marriage, your own credit profile may have
changed. Lenders review accounts, usually on a quarterly basis,
to see if they need to make adjustments. If you are building up
higher balances, perhaps from the wedding or any new expenses, your
creditors might want to limit their exposures by reducing your card
limits. This may help protect their exposure to a large, potentially
bad loan, but it will also increase the ratios of debt you have
outstanding to your credit limit.
For example, if you owe $5,000 and had a $10,000 credit
limit, you owe 50 percent of your limit. If the creditor lowered
your max to $6,000, presto! You now owe more than 80 percent of
your limit. This percentage is a factor in computing your credit
score, and a higher percentage of amounts-owed-to-credit-limit will
lower your score. Total amounts owed, as compared to total credit
available, account for about 30 percent of your credit score. A
lower score can cause the lender to further reduce your credit max
and so on.
Here's what you can do about it: Slow down the spending and pay down balances until you get to 50 percent or less of your new limits. As your balance drops, your score should rise and your limits may increase.
Be sure to order a copy of your credit
reports from all three bureaus and get a credit score from each
one. The problem could be that inaccurate, or someone else's information
may be on your file. There is even the chance that you may be the
victim of identity theft and your lower score is your first sign
of something amiss.
Finally, if your mother didn't tell you, let me. Do not enter into any new joint credit obligations with your new husband until his credit report improves. Financial problems are the biggest cause of divorce, and that is a lot worse than a lower credit score.
The Debt Adviser, Steve Bucci, is the president
of Money Management International Financial Education Foundation
and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt advice or to ask a question of the Debt Adviser
go to the "Ask the
Experts" page and select "debt" as the topic.
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