While married couples don’t inherit each other’s credit scores, one partner’s weak rating could sink the family’s financial goals.
If one of you has a less-than-perfect number—anything under the mid-700s on the FICO scale—it can affect your ability as a couple to qualify for joint accounts, like credit cards, mortgages, or auto loans, says Rod Griffin, director of public education at Experian.
For example, lenders might not approve you together for as large of a mortgage as you’d like or may only extend you one with a really high rate. And if you can’t handle those terms, “you might find yourself completing an apartment lease application while you work to rebuild your spouse’s credit history,” says Griffin.
As the higher scoring spouse, it’s in your best interest to help your partner improve his or her credit. Here’s how:
Do encourage diligence about credit card payments…
The strength of your credit score is based 35% on your bill payment history and 30% on your level of outstanding debt—particularly credit card debt.
Remind your partner to pay his or her bills on time each month (you might suggest setting up account alerts so that you don’t have to be the nag). And explain to your loved one that it’s important to keep outstanding balances on his or her cards under 20% of the limit on those cards, since the formulas reward a low utilization ratio.
“Attacking those two issues will help improve credit scores faster than any other actions,” says Griffin.
…but don’t step in to wipe away your partner’s missteps
Think twice before using up personal savings to clear your partner’s towering credit card balance.
If the debt stems from reckless and irresponsible spending, bailing out your spouse won’t teach any lessons. “You’ll be an enabler,” says Barbara Stanny, author of the forthcoming book Sacred Success: A Course in Financial Miracles. “[Your spouse] could fall right back into debt.”
A more effective way to help reduce your partner’s debt may be to cut costs from your family budget (primarily from your spouse’s discretionary spending) and use the savings to chip away the debt. While it’s a slower process towards rebuilding credit, the extra discipline and effort involved may be a helpful reminder in the future of why it’s never a good idea to overspend.
Another strategy, if you earn enough money: Consider taking on some monthly costs that you previously shared—like rent or the car payment—by yourself to allow your spouse to use more of his or her salary towards personal debt.
Do let your partner piggyback…
Another possibly efficient way to improve your partner’s credit rating is by adding him or her to one of your major credit cards as an authorized user. “Most scoring models incorporate authorized user accounts in the [credit score] calculation, so they can contribute positively,” says Griffin.
You simply call up your credit card issuer and request to put your partner’s name onto the account as an authorized user. He or she will receive a personal card attached to your credit limit in the mail.
Assuming you both use the account responsibly and pay the monthly balance on time and in full, both your credit profiles can benefit.
But you should know that your spouse will not be liable for payments.
Also just make sure to monitor his or her spending activity regularly. If your partner gets too swipe-happy you may want to cancel access so you don’t see your score come down or your balance go up beyond what you can afford to pay.
….but don’t co-sign on the dotted line
Taking on a new credit card and using it responsibly is yet another way to help improve one’s credit rating. But if your partner needs you to co-sign or be added as “secondary” borrower, think twice.
You’re lending more than just your name. If your spouse falls behind on payments, the bank could come after your money.
“It’s a horrible idea,” says John Ulzheimer, credit expert at CreditSesame.com. “When you co-sign you are essentially…guaranteeing payment on behalf of someone whom the lender feels isn’t credit worthy on their own.”
Co-signed debt can also come to haunt you, should you ever get divorced. “There’s no easy way to separate yourself from it,” says Ulzheimer. “When the two of you break up, you’re still connected via the liability, whether you want to be or not.”
A better idea: Introduce your partner to a secured card, designed for borrowers who can’t qualify for a regular credit card yet due to poor or insufficient credit histories. You load it with your own money—usually between $300 to $500—and proceed to spend. You can only charge as much as you put down as collateral.
Secured cards are available at many banks and credit unions. Money likes the no-fee one offered by Digital Credit Union, the interest rate on which starts at 11.5%. (You must be a member of DCU to apply, though you can join with a $10 donation to Reach Out for Schools.)
The catch with a secured card is that it’s very easy to charge up to the credit limit, but that’s no good for your credit score. Ideally, your spouse should keep his or her spending to less than 20% of the limit.
Consistently paying off the balance for about a year may then earn your partner an upgrade to a traditional credit card with a solid credit limit—maybe even rewards. But most importantly, your spouse’s behavior using the secured card will also be reported to the major credit reporting agencies, which in turn helps to raise his or her credit score.
Farnoosh Torabi is a contributing editor at Money Magazine. She is the author of the new book When She Makes More: 10 Rules for Breadwinning Women.