Want to come upstairs and see my credit score?
Posted: Tuesday, August 19 2008 at 06:00 am CT by Bob Sullivan
When should you do it? On the third date? After meeting her parents? Half-way through the first date? When it just feels right? One thing is certain: you shouldn’t wait until you get married.
The idea of asking a new significant other about his or her credit score probably makes you squeamish, but it’s a subject that ultimately unavoidable. Just as you inherit in-laws when you tie the knot, you inherit credit history too. But unlike family ties, it can be nearly impossible to sever yourself from bad credit.
This column could quickly begin to sound like an overbearing parent. (Did you ask about his grandparents? You want to make sure you're marrying into good genes!) Or the meddlesome advice of a nosy friend. (You know she has emotional baggage, right?)
To avoid that, I will offer no specific advice about the exact timing for this uncomfortable conversation. Instead, I’ll separate some myth from fact and discuss the consequences of blindly going into a relationship with someone who has spotty past with credit.
We'll start with the obvious observation that the time to find out about your lover’s splotchy credit report is not during the honeymoon. Having the conversation about money and debt is just as important as the conversation about having children, or any of those other tricky topics.
Helen Popkin’s Ode to FreeCreditReport.com last week set off a firestorm of discussion on the topic, inspired by the TV ad where the heroic male character blames his dismal basement dwelling on his girlfriend’s bad credit -- or rather their failure to use FreeCreditReport.com before they shacked up. While it is a great idea to talk about credit scores, it’s a terrible idea to do what the ad hints at: to invade your significant other’s privacy by ogling their credit score online. Let's be clear about this: It's illegal to look at anyone's credit report without their permission. The best place to look up your own is AnnualCreditReport.com, the only place where you can get credit reports for free.
'The least romantic date'
The message you should be getting from what those FreeCreditReport.com ads is this: At a certain point in a relationship, you should have the credit conversation. Or as personal finance author Liz Weston calls it, "the least romantic date."
"You both print out your credit reports, bring them to dinner and share them," says Weston, not a hint of sarcasm in her voice. Author of numerous books on personal finance, including "Your Credit Score," Weston fields questions every day on her Web site AskLizWeston.com. It's uncanny how many questions she gets from couples who never had the credit conversation while dating.
"I regularly hear from readers that they married someone they found out afterwards had tens of thousands of dollars in debt," she said.
It's human nature to root for things to work out, particularly in the early stages of a relationship. So it’s also human nature to want to avoid the "credit score" conversation, which really can throw a monkey wrench into an otherwise happy pairing. Let me ease that burden for you. According to John Ulzheimer of Credit.Com, one of the nation’s leading experts on credit scores, the FreeCreditReport.com advertisements are a bit of an exaggeration. Marrying a man with a bad credit score doesn't automatically doom you to a dark basement apartment, he says. In fact, even after marriage, the two of you will maintain separate credit reports and credit scores, he says.
"Your credit reports never co-mingle. You always maintain your own credit report. Your scores will never bleed over," Ulzheimer said.
Only co-signed loans and joint credit cards will appear on both credit reports, meanings it's perfectly possible to maintain a good credit score while living with or marrying someone with a lot of bad debt.
Notice I didn't say that wouldn't impact your life; only that it won't impact your credit score if there is no mingling of debt. That's a big if, however. In most cases, couples apply for large loans together, because they need both incomes to qualify for the loan. In that situation, the bank will pull both spouses' credit scores and the low-score partner could severely impact the couple's ability to get a good home loan.
“Technically, you can keep your finances separate and your scores separate, but if you are dealing with a bad credit scores it will affect your life,” Weston said. “You’ll be getting the collections calls, too.”
Often, couples will open joint credit cards so the low-score partner can get better interest rate and terms. That sounds sensible, but it can lead to a disaster because late payments on joint cards bring down both parties' credit scores. In fact, a spouse with a perfect payment history can take a 100-point hit from a single late joint credit card payment by the other spouse.
Divorce easier than a financial separation
Thing get even more sticky if the marriage goes sour. Joint debt remains the responsibility of both spouses even after the divorce, and even after a judge assigns it to a single party. Many divorce lawyers miss this important fact, Weston says: Contractual agreements with lenders supersede divorce decrees. So if an ex stops making payments on a credit card, the other spouse is legally responsible. Even after the debt is paid, the late payments can impact both spouses for years.
One victim I've spoken to had $3,000 in credit card debt on a joint card at the time of divorce, but several years later, the debt had ballooned to $18,000. He was responsible for paying it all, every though he hadn't spent any of it.
"It's harder to get out of a co-signed loan than it is to get out of a marriage," observed his new girlfriend. They requested anonymity for obvious reasons.
Believe it or not, there really is no way out of a co-signed debt arrangement. Divorcing parties can ask their bank for release from joint credit cards, but banks are under no obligation to grant such release, and why would they? They'd be less likely to be repaid. Co-signing means what is says: You are responsible for the other party's debt -- no matter what.
The only way out of this divorce quagmire is to close all joint accounts and have the debt -- all credit card debt, car loans, home loans, etc. -- moved to individual accounts before the divorce is final, says Weston. That can be costly (for a home loan, a refinance is usually required; for credit card debt, pay off balances with balance transfer checks from new cards). But it's the only sure way to truly straighten out all debt obligations.
“The stunning part is the horrible advice some people get,” said Steve Bucci, author of “Credit Repair Kit for Dummies.” “For someone to go through a divorce and leave an account open is amazing. … You’re paying a lawyer a lot for advice, and they should know better.”
I hope I've convinced you of the importance of that boring date involving credit report disclosure. But if I haven't, Ulzheimer offers another incentive. People almost always follow the same spending and debt habits before and after marriage. Rare is the undisciplined spender who suddenly acquires good money habits during the wedding ceremony. So a credit report peek will be a pretty good predictor of how money issues will go during the marriage. Disputes over money are among the leading causes of divorce, so it's best to get spending and payment styles out on the table as early as possible.
Opposites attract, and this often holds true for money issues. Spenders and savers frequently end up together, notes Weston, an arrangement which inevitably means the fiscally conservative partner learn more than they ever wanted to about collection letters and finance charges.
Predictably, it's usually the partner with good credit who is more anxious to a have the debt talk. It is also true, says Weston, is that the indebted partner often sugarcoats their financial situation.
That's why it's best to have that boring date, Weston says. Just talking about debt in vague ways might not unearth the real issues.
"And actually, pulling a credit report is really a neutral thing, in black and white," she said. "It's not like you can fudge the stuff."
How to bring it up
Obviously, inviting someone to share the most intimate details of their financial life will not be the easiest conversation in the world to start. Ulzheimer suggests a light-hearted tone, to avoid giving the conversation a flavor that might make it sound like a discussion of a pre-nuptial agreement.
"Say, 'hey, how funny would it be to compare our credit scores,' " he said. And since regular credit checkups are highly recommended anyway, the credit report swap is a great learning opportunity.
Weston also says it's important for the financially stronger partner to avoid using a 'holier-than-thou' tone.
"You've got to get off your high horse a little bit. ... Keep in mind that the goal is not to make the other person feel bad, it's to make sure your financial life is as harmonious as possible," she said. "You don't want any surprises that could threaten the relationship later."
Many couples in their 20s and even their 30s will find they have common ground, anyway, when the subject of student loans arise.
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As for the original question of when to ask about your beau's credit history, there is no rule of thumb. Weston suggests it should come immediately after any conversation that will lead to a financial commitment to each other -- marriage or cohabitation, for example.
"First discuss commitment, then this should be your next discussion," she said.
Of course, having the talk even earlier wouldn't hurt. If you are the less-indebted partner and you find yourself really dreading the debt talk, that's important information right there. Maybe you aren't good at confrontation, or maybe the relationship just isn't strong enough to handle serious discussions.
If you are the indebted partner, you'll demonstrate sincerity by devising a plan for dealing with the debt before your partner even asks about it. For example, have a spreadsheet showing how you'll be debt free in three, four or five years. Now would be a good time to come up with that plan to rebuild your financial life and show you are ready for other commitments.
Make 'Dear John' data letters meaningful
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