Newlyweds, financial planning and credit
Marriage is a big step and it involves a lot of planning, organisation and logistics. When it comes to money, credit, and finance, there are important things to consider in order to avoid negative consequences in the long-term. Should newlyweds share a new bank account or are there an advantages to keeping finances separate? What liability comes with a shared mortgage and what happens when one party has a history of bad credit? Here are some key points to consider.
Shared or separate accounts
The primary benefit of keeping separate accounts seems obvious: each party has full control over their accounts and is responsible for their own finances, just like before the marriage. However, separate accounts are not ideal when a mortgage is needed for a new family home, when the new car needs financing or you want a shared credit card. In situations like these, sharing the burden seems like the better choice – but with shared accounts also comes shared responsibility.
Marriage and joint finance
Many newlyweds assume their credit files automatically become linked together, because they live at the same address or officially share the same name after the wedding. But this is not the case – as long as accounts are kept separate, there is no financial link. This only changes when the newlyweds are financially link, for example, when they become joint cardholders, get a mortgage together or share a new credit card.
Having a joint financial agreement is known as ‘financial association’. This means that a link is created in the credit reports of both parties. This affects your legal liability to keep up payments; it can affect both your creditworthiness as well as your spouse’s, and it can only be broken once the shared account is closed. This is especially significant when one party has had bad credit.
Bad credit, such as missed payments, debt or bankruptcy, is an uncomfortable topic and often avoided. Debt or financial irresponsibility are often accompanied by feelings of shame and guilt and are not something people openly talk about, in the fear of being judged. But it is important to know and talk about past or existing bad credit, as it can affect not just your own ability to borrow, but your spouse’s as well, if there’s a financial link. Lenders may look at both parties’ credit reports to determine the likelihood of their keeping up payments and can refuse credit even if only one of you has a poor credit history.
This can lead to very negative surprises: the new mortgage is refused unexpectedly or your bank won’t give you good rates for the new credit card, even though you’ve had good rates in the past. Learning that this is a result of your spouse’s bad credit history could even have serious consequences for your marriage. This is why it’s important to discuss past credit and how you can manage or repair your creditworthiness as a couple. This is especially important if one party has filed for bankruptcy at some point.
Marriage and bankruptcy
In extreme cases, you or your partner might have had to file for bankruptcy in the past. If a financial link exists, the bankruptcy negatively affects both parties – and your ability to obtain credit – for six years or longer. To keep your beloved from the dangers of negative credit, both parties need to openly discuss what has led them into bankruptcy, how they can repair and rebuild their creditworthiness and, in order to protect the creditworthiness of the other partner, if shared finance is really the best option.
Talk the talk
All these factors illustrate the importance of talking about money, credit and finance before marriage. To avoid having money turn into a sensitive topic, it is crucial that you know your partner’s credit history before agreeing to take out shared finance. Sitting down and talking about money, any potential debt from the past and your financial future together can be the financial starting point for investing in a successful marriage.
To find out more about your credit history, you can check out your Equifax Credit Report & Score – it’s free for the first 30 days, then £14.95 a month.
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