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Archive for Thursday, July 6, 2006

Marriage myths & truths

Credit misconceptions abound

July 6, 2006

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Women are often told that once they get married, it's imperative that they keep credit in their own name.

By keeping a separate credit history from their husbands, they are instructed, women ensure they will remain credit worthy if they become single again.

Like the petticoat, that advice is old fashioned.

As this is one of the top seasons for weddings, I thought I might put to rest some misconceptions about couples and credit.

First, here are the primary reasons why a divorced or widowed woman would have a problem with her credit history and thus obtaining good credit scores, according to Craig Watts, the public affairs manager for Fair Isaac Corp., which created the widely used FICO credit scoring system many lenders use to determine who receives credit and at what cost:

¢ She had no credit history as a single woman. If all the reported credit accounts had been in the name of her husband only, the credit reporting agencies would have no credit history on file for her.

¢ She had bad credit when she was single. Negative information can remain in your credit files for up to seven years (10 years in the case of a bankruptcy).

¢ She closes all her joint accounts. If her only credit accounts were joint accounts with her husband and she closed them all, this could create a situation where, after six months or so, her credit file might not meet the minimum requirements for calculating a FICO score, thereby making it more difficult to meet a lender's minimum qualifications for new credit, Watts said.

The minimum requirements for calculating a classic FICO score are: at least one account six months old or older, at least one account that has been updated by the creditor in the past six months, and no "deceased" indicator on the credit file.

Of course, a divorce could put you in a worse economic position, especially if you were a stay-at-home mom, but your marriage doesn't automatically change the credit profile - good or bad - that you established as a single woman.

The truth of the matter

Here are some other credit misconceptions couples have:

¢ Myth: When you get married, your spouse's bad credit history automatically affects your own.

¢ Truth: Couples don't have joint credit scores or credit reports. You are scored based solely on information in your individual credit files. Your credit files aren't merged after a marriage.

Therefore, if you marry a credit-challenged man, you don't inherent his bad credit unless you co-sign with him for new debt or become joint credit account holders. Likewise, your own bad credit doesn't instantly improve if you join financial forces with a better credit catch.

¢ Myth: The best way to help your spouse build a better credit history is to make him an authorized user on your account.

¢ Truth: Adding your husband as an authorized user can help him build a good credit history (provided you handled the account well).

If the creditor is reporting that shared account to at least one credit reporting agency, the account will show up equally on the credit report of both the primary user and the authorized user, Watts said.

However, here's something you should understand about allowing someone to become an authorized user. They get their own card with their name on it. They can use it whenever they want (at least up to the credit limit). The past and future history of the card usage gets reported on their credit file and yours.

But - this is a big but - only the person who opened the account is liable for paying off the debt.

If you want your husband to be held responsible for credit charges (and he should), don't just make him an authorized user. Make him a co-signer.

Spouses should help each other build better credit. Just be forewarned that as much as your past good bill-paying habits can bring his credit scores up, his bad habits (left unchanged) can bring yours down.

"The account's history will remain on their credit reports for years to come, so a good history will benefit their future individual scores and a bad history will likely hurt their individual scores until the negative information is eventually removed by the credit reporting agency," Watts said.

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