Getting married soon? You probably didn’t have many serious discussions about your credit record and your credit history when you were falling in love. But once you start planning your wedding, it’s essential that you learn everything you can about your partner’s attitudes towards money, spending habits and current financial situation.
That’s especially true in cases where your partner has filed previously for bankruptcy. If you’ve worked hard to build an excellent credit history, it’s important to know how your spouse’s credit history could impact your own credit score.
The impact of your spouse’s bankruptcy will depend on a number of factors:
- How you plan on handling your money.
Will you and your spouse be pooling your bank accounts and credit cards, or keeping them separate? If your future spouse’s bankruptcy is still included on his/her credit report, it might be wiser to go solo instead of opening joint accounts or adding your names to each other’s accounts.
It takes time to remove that bankruptcy from a credit report. Under Chapter 7 (liquidation of non-exempt property to settle debts) bankruptcy remains on a credit record for 10 years after the filing date. For Chapter 11 (reorganization) the bankruptcy stays on the credit record for seven years. The more recently bankruptcy has been filed, the more likely it is to have a negative effect on a credit record.
- The state you live in.
In some states it’s more difficult to maintain a separate financial identity. Nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) have community property laws for married couples, which state that all money earned and all debts incurred after people marry are joint earnings and joint debt. So your spouse’s bankruptcy could affect your credit even if you make an application for a credit card or a loan under your own name.
A creditor operating in a common property state may consider that your spouse will be equally responsible for the debt and so may check his/her credit record. When a bankruptcy shows up on your spouse’s record, the lender will weigh that into their decision about whether or not to approve your application. It could also affect the interest rate you receive; the worse the credit score, the higher the interest rate is likely to be.
- The reason for your future spouse’s bankruptcy.
During the Great Recession many people lost jobs and couldn’t find new ones. Sometimes even people who had a history of being financially responsible were forced to declare bankruptcy. In other cases, people had some catastrophic illness or catastrophic loss (like a home burning down) and had no recourse except to go through bankruptcy.
If your intended had this type of financial disaster and has, since bankruptcy, resumed good financial habits, you can probably breathe easy. If you apply jointly for a mortgage or even for a credit card, lenders are likely to take into account your fiancé or fiancée’s efforts to be a responsible debtor.
But if your future spouse got into financial difficulty because of overspending or taking on too much debt and hasn’t changed his/her ways, your own credit record may be impacted down the line. Suppose your spouse has agreed to be responsible for paying off a joint credit card but forgets to make payments or skips them altogether. Your credit score that will suffer from those delinquencies.
Five ways to maintain your good credit score despite your spouse’s bankruptcy
- Discuss your concerns about the bankruptcy up front and assess whether it is likely to happen again.
- Maintain separate accounts at least until the bankruptcy has disappeared from the credit report. (It’s always a good idea to maintain at least one separate account anyway.)
- Don’t add your spouse as a joint owner of your credit card accounts; don’t become a joint owner on his/her account.
- Take charge of bills to make sure that the required payments on any joint accounts are made in a timely manner.
- Put yourself and your spouse on a budget to help keep your spending within bounds.