In marriage, good credit can heal bad

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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.