If you’re worried about your partner’s credit score, then you’re not alone among Australians. If you’re not worried, and you are unsure of your partner’s credit status and financial history, then perhaps you should be.
Your Partner’s Credit Score Could Affect You!
Whether you don’t feel like you need to have discussed finances with your partner yet, are married but generally keep your finances separate, or you feel like you don’t care about your partner’s credit score, at some point during your relationship it is likely to affect you, unless:
The trouble with these conditions is that not only are they all sweeping and far reaching statements, but they’re also liable to change either soon or in the distant future.
Even if the above three points ring true today, it still pays to know your partner’s credit score and be aware of their financial past.
Before I Have a Difficult Conversation…Why Do I Need to Know?
If you are fairly new in a relationship, or you are unsure where your future lies with your partner, then knowing their credit score and financial history might give you some clues about whether you will want to pursue the relationship in the long-term.
There are plenty of stories, including the one highlighted here, about people getting nasty surprises about their partner’s credit history when they go to take out a mortgage or another form of joint borrowing. This can be upsetting, embarrassing, and confusing in equal measure – as well as logging a search on your credit file for an application that was never going to be accepted – and is a situation best avoided.
While your partner’s credit score will give you some idea as to their financial past – particularly if you know exactly what is on your credit file, have an excellent credit history, and can easily compare between two scores – it may pay to look at their credit file further, with their permission, of course! Alternatively, you can simply have a discussion about finances, which may be better if you feel asking to see their credit file is somewhat intrusive!
What Should I Be Looking for and Asking, and What Considerations Should I Make?
Just because a person has thousands of dollars’ worth of debt doesn’t make them a bad bet financially, in much the same way as a person who is debt free may still have some adverse credit history that they are still recovering and rebuilding from.
When you approach the subject of credit histories, remember that the conversation probably isn’t going to be as difficult as you imagine it will be. If you need an “in” for the conversation, then look to mention a financial story in the news, or something else you may have read or seen on the TV.
What should you be asking or looking for?
Do You Have any Debt?
This is a straightforward question and while it asks for a “yes or no” answer, most of the time you’ll find your partner is willing to expand on the answer they give you.
Depending on the answer you get, you can then move onto the level of debt they have, and they type of debt they have.
How Much Debt Do You Have, and What Type of Debt is it?
These questions are probably the most important, and will tell you a lot about your partner’s credit history.
If they turn around and tell you they have $30,000 worth of debt, you needn’t be alarmed right away. Instead, ask about the circumstances behind the debt. If you’re both in your mid-twenties and your partner is a doctor with a large student loan balance to pay off, this is different to your partner being someone who got carried away having access to credit cards in their early adult years and are still in debt thanks to wild nights partying and only repaying the minimum payment each month.
At the same time, someone who doesn’t have any debt may have had a debt problem in the past. This could explain a low credit score for someone who doesn’t owe anything at present.
There’s also a difference between owing $30,000 on a personal loan and having that much held on credit card balances, though this is likely to reflect in their credit score anyway. A personal loan balance of $30,000 will have an end date, and if your partner can manage their regular repayment easily this isn’t a problem. A $30,000 credit card debt, however, if your partner can only afford to repay the minimum amounts each month, will likely bring their credit score down due to their exposure to debt and the very slow reduction in their balance, and take them years to repay.
This article looks closer at what high credit card debt can cost when you only make the minimum payments, and the danger this carries.
What is Your Attitude to Money Right Now?
In most, but not all, cases, a bad financial experience or seeing the consequences of being reckless with money is enough to make people re-evaluate their attitude and take a different approach to all finance and credit matters in the future.
If your partner is in the process of repaying a large debt, has consolidated their debts, or doesn’t have any debt but is looking to rebuild or restore their credit score, you should be satisfied that the problems of the past are behind them and aren’t likely to occur again. You’re then in a great position to support them, so that when the time comes to take out a mortgage or another joint credit agreement, there won’t be any nasty surprises and you can both follow your dreams.
If Your Partner Has an Average Credit Score, You May Bear the Risk
How you proceed if your partner has adverse credit is up to you. In terms of a mortgage you will often need to include their income in order to pass affordability tests for a property, so depending on their circumstances buying a home could be out of the question for the foreseeable future. In other circumstances, you may choose to take out a personal loan or another credit product that you’re both going to use, but you should be aware that the loan will only be in your name. Should you split up or anything else happen, the financial liability is fully on your shoulders.
Check Both Your Credit Files and Remove All Doubt
You’re entitled to check your credit file free of charge – and ongoing access doesn’t cost too much – so take the time to check it, ensure all the information held on there is correct, take the time to recover from any adverse credit, and remove all doubt of being accepted for credit in the future.
You can learn more about credit ratings and reports, how to ensure yours is correct, and how to keep your credit score where you want it to be, here.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.