“When a man is in love or in debt, someone else has the advantage.” – Bill Balance
With all of the coverage about same-sex marriage in California, there have been fewer stories this past month about what happens after the wedding: when couples begin to merge finances, take on debt, etc. So last week, I connected with Julie Wooding at Fair Isaac (the people behind myFICO.com) about the implications of California’s marriage ruling on FICO scores and other related issues for the newly wedded. Here are her answers to my questions…
1. Since California is a community property state, both spouses become responsible for each other’s debts taken on during a marriage. How will this play into one’s FICO score?
What can or may affect a FICO score is limited to the information that is on a consumer’s credit report. First of all, it’s important to remember that each individual consumer will have their own individual credit report. That is, if two spouses open a joint account together, the subsequent record of that account will most likely be reported by the credit bureaus on each individual’s credit report. If the laws of a state govern what debt a spouse may or may not be responsible for, and if this information is not reflected on a consumer’s credit bureau report, it cannot be included in their FICO score.
2. Is it the same if couples just decide to remain domestic partners vs. obtaining a legal marriage?
Absolutely true. The FICO score for an individual consumer, whether they be married or single, will reflect the credit information reported by their own lenders on their credit bureau consumer report.
3. Why should gays and lesbians consider their potential spouse’s FICO credit score and financial history before approaching the altar?
The truth is that this is a wise move for anyone approaching the altar! There are several reasons why this is crucial. Let’s say that Jane and Joan are considering marriage, and they plan to buy a home together and co-sign the mortgage loan. The loan terms that any mortgage lender will offer to Jane and Joan will be influenced by their individual credit ratings or scores. If Joan has paid her credit obligations in a slow and sloppy manner, and has numerous delinquencies on her credit report, her FICO score will likely be lower than Jane’s. The mortgage lender may see Joan’s file as representing greater risk, and therefore may not offer the two the most preferred interest rate or other loan terms. This is something that Jane would likely want to be aware of before tying the knot, I would think. In addition, given Joan’s past tendency to pay her credit obligations in a sloppy manner, it’s possible that she may not pay on time a credit obligation on which they are both joint accountholders. Any delinquency reported on such an account would then be reported on both of their individual credit reports, and it may impact the FICO score for each of them.
4. Are there benefits in married gay couples being “authorized users” of their spouses’ credit card? What are the drawbacks?
Traditionally, the authorized user approach was used by women who didn’t have credit in their own names, and therefore were added as authorized users on their husband’s credit cards. This has also been done for young adults who were added as an authorized user on their parent’s credit cards. These situations generally occur less often these days, when more consumers than ever are obtaining and maintaining credit in their own name. The best way for an individual to improve their credit is to follow several simple rules: Always pay your bills on time; if you’re behind, get current and stay current. Keep credit card balances low, compared to credit limits. Take on new credit only when you really need it.
5. What does marriage mean for mortgage and other loan applications for any newly-married gay or lesbian couples considering big purchases such as a new home?
Newly married individuals seeking a loan to make a significant purchase should make sure to review and understand each individual’s credit history and FICO score. If one individual in the marriage has a long history of meeting credit obligations, but the other individual has been inconsistent or frequently late with payments, it may have a negative impact on the couple’s ability to get a loan. Lenders are reviewing and evaluating each individual’s history and will not simply act solely based on information from the individual with the higher FICO score.
If you’re newly married, considering marriage or just thinking about living with the love of your life, then there is no time like the present to have the money conversation. Jeanine and I did this in the first few months of dating. And yes, revealing our FICO scores was part of that conversation! Communication is key. In five and a half years, we’ve only had one big money fight. Not a bad track record considering the complexities of love and money!
So have your money conversation today. Literally. For a limited time, myFICO is offering Queercents readers a 20% discount on the FICO Credit Complete (all 3 FICO scores and reports) from July 13th through July 31st, 2008. Visit this link at myFico.com and enter the promo code BLOG20 at checkout.
More about Julie Wooding
Julie Wooding is a Senior Consultant and has been with Fair Isaac since 1993. Working in Fair Isaac’s Scoring Client Services Unit, Julie provides expert consulting to clients in the deployment and strategic use of Fair Isaac scoring solutions. These include the FICO® Credit Risk scores and other Fair Isaac risk, bankruptcy, and marketing scoring tools. She has experience in behavior and risk score development, and previously managed a team of analysts that developed both Classic and NextGen scores for U.S. and Canadian credit bureaus. In her 15 years at Fair Isaac, Julie also served as a strategy consultant, a role in which she worked with clients to develop, evaluate, and continuously improve their account management strategies. Julie holds a B.S. in Finance and an M.B.A. degree.