May 13, 2024
As you and your partner forge a path into the future together, you’ll likely encounter a host of challenges, from the everyday to the more serious.
It’s easy to get wrapped up in the exciting parts of marriage, like picking out furniture or planning for dogs, cats, vacations, babies, or all of the above.
While each of these details is important to the life you’re creating, it’s also critical that you take stock of your individual financial histories and how they may affect your plans. Eventually, your credit scores will come into play. These may not be comfortable conversations, but they are essential to a happy future.
“Couples need to take the time to understand each other’s financial history and outlook to get on the same page with their partner. This can help avoid creating conflict as well as optimize their future together,” said Gregory Corey, a Chicago-area financial advisor. “There needs to be a clear understanding from the start.”
Getting married does not affect your individual credit score. Your credit profile is strictly your own. If you have debt, as long as you continue to make timely payments, keep paying down the amount you owe, and don’t open a new line of credit, your credit score should remain stable regardless of your partner’s situation.
Credit reporting agencies such as Experian®, Equifax®, and TransUnion® will continue to determine your credit score on the basis of your credit history, amounts owed, credit mix, and recent applications for new credit, just the way they did before you were married.
Your perspective on money has likely been shaped by many things, including family attitudes, direct personal experience with financial abundance or hardship, or the economic climate when you were growing up.
Premarital financial conversations are important in order to get a true understanding of each other’s outlook. This includes talking about spending, debts, and how each of you has handled money issues in the past. It might also help to talk about your families’ financial histories, including whether there were struggles, poor or tough decisions, or budgeting rules. Even knowing if family finances were hidden or discussed openly may be helpful.
Keep in mind that, just like other aspects of your lives, the money landscape may change in important ways as you become a family.
It’s possible that you’ve both built strong credit histories and established positive financial habits. Sometimes, however, either one or both of you may still be learning what to do as you develop shared financial priorities.
To be on the same page about your credit, it's important to establish transparency. You should understand the approach that each of you brings to the table financially. Set aside time to have a conversation about how each of you prefers to handle money. Take turns asking questions about your spending and financial goals, and try to listen without judgement.
“While couples should take the time to understand each other’s balance sheet and cash flow at a high level, they should also discuss their views on money and how they look to utilize it in their lives,” Corey said. “It is not just about the history coming into the relationship, but rather the lives they plan to live and how money will play a role.”
Research has found that financial decisions may be a significan source of tension in a relationship. So even if this exercise feels uncomfortable, remind yourself that you’re setting an important foundation for your life together.
As a couple embarks on life together, major purchases often follow. Here’s where a less-than-stellar credit history may deliver unwelcome news. Poor credit health of either partner might affect accounts you apply for together.
This might be a big deal if you plan to buy a home, refinance a home in both of your names, purchase a car, or open a joint line of credit.
In situations like these, the lender may apply a formula that factors in your collective income and outstanding debt. By combining both partners’ incomes and debts, they arrive at a household debt-to-income ratio, or DTI.
Your DTI and your credit scores carry substantial weight in determining whether you qualify for a loan, what type of loan you qualify for, and what terms you’ll be offered. If you fall comfortably under the lender’s DTI threshold and you bring strong credit scores to the table, you’ll qualify for a lower interest rate, which may save you money on interest over the loan’s repayment term.
Past financial challenges don’t mean that you and your partner can’t make plans for major purchases in the future.
A good strategy could be to lay out steps for how the two of you might pay down existing debt as soon as possible. Remember that you can’t improve your credit overnight. But once you’re committed, you’ll find momentum in each incremental improvement that brings you closer to that shared dream.
Corey advises that when one partner has debt and the other does not, it’s vital to discuss how best to manage that financial obligation.
“It’s important for both partners to know the origin of the debt and work together to prevent a recurrence,” he said. “This is especially true when entering marriage, as that might shift any individual debt to that of the household.”
To achieve this, consider two important steps:
Part of the process for improving your financial situation might include pursuing financial education together. Learn about the factors that determine your credit score and how your actions (even small ones) might affect it.
With a better understanding, you’ll be more motivated to manage what is within your control, like establishing a system to make payments on time and chip away at outstanding debt.
As you learn more about your finances, you'll be in a better position to plan for the future. It’s important to develop a plan that’s reasonable for both of you. The plan may differ for every couple. That’s okay. The most important thing is to create a framework that works for both of you so money doesn’t cause friction.
If one of you enjoys a solid financial position while the other struggles with debt, you might wonder whether it makes sense to pay off a partner’s debt and start with a clean slate.
The answer is maybe—and it may depend on some factors:
When analyzing your debt, it is important to know how it was incurred. Creditors may view medical and student loan debt differently than consumer debt. If that’s the case, it may not have as large an impact on your credit health together. You may also be able to pursue debt consolidation at a lower interest rate, debt settlement, or even debt forgiveness in some situations.
Before making a lump-sum payment to pay off debt, ask yourself if you are able to make the payment without wiping out your own emergency fund. It might be possible to pay off debt and protect your savings at the same time. It’s always good to preserve the financial peace of mind that comes with having some money in the bank.
It is always better to understand your collective debt situation early in the marriage, or even before the wedding day, so you can plan sooner rather than later to address any issues. As you do, you might want to keep two things in mind:
While it might seem easier now to maintain your individual financial habits and hope for the best, that path of least resistance might cost you in the future. For instance, it may make it more difficult to qualify for a mortgage on your dream home or cause you to pay higher interest rates on joint loans.
A personal loan might be a helpful tool for taking control of your premarital debt. With a personal loan from Discover®, for example, you have one set regular monthly payment, a fixed repayment term, and a fixed interest rate. Depending on your situation, the interest rate may be lower than what you might pay on a credit card balance.
In this way, debt consolidation could help you to pay off debt sooner than you would if you made only minimum monthly payments on a credit card. You might save hundreds, even thousands, of dollars in higher-rate interest.
We’ve helped over 1 million customers consolidate debt with a Discover personal loan.
Remember, even if your credit picture isn’t perfect today, you may make meaningful improvements over time by taking small steps and doing so consistently. Together, you and your partner may get well on your way to achieving your big dreams.
“Open communication and having a plan will make any journey smoother,” Corey added. “Financial transparency allows honesty and communication, which are, of course, the foundation of any successful marriage.”
Interested in learning more about credit health and how to improve your situation?
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