Building a strong credit score can take years of paying your bills on time, spending wisely and avoiding too much debt. If you've spent a lot of time and effort building a great credit score, you may be very protective of your credit.
But if you're in a relationship with someone who has poor credit and you're at a point that you're moving in together or otherwise sharing expenses, your credit score could be in jeopardy. Not because your Valentine's bad credit will directly impact yours: Credit reports don't get merged, even after you're married. But a person's poor money habits can have an indirect effect of your financial standing and any joint accounts you decide to sign up for will appear on your credit file.
In other words, if your beloved has bad credit, you'll want to take steps to avoid damaging your own. Here's how you can safeguard your credit score from your partner's bad credit.
1. Consider Keeping Your Funds Separate …
There are a number of reasons your partner could have poor credit, including unexpected financial hardship or identity theft.
"Someone with a low credit score could still be responsible with money and pay all the bills on time, but may just have some unexpected medical debt," says Matt Gulbransen, owner of Callahan Financial Planning Corporation. But your partner could also have poor money-management skills. And, if that's the reason for their credit score woes, you may want to keep your bank accounts separate for awhile. You can still split expenses while restricting access to your personal bank account.
2. … the Same Goes for Other Accounts
You can apply the same strategy to other accounts, including credit cards, loans and any accounts with monthly payments. Missed payments on shared accounts will inflict mutual damage to both of your credit scores. Your partner's poor credit could be due to a history of late payments or accounts in collections, so think twice before sharing. (And, if you do decide to share, keep a close eye on those accounts.)
"I suggest you don't join credit cards until you build the credit of the other party," says Gulbransen.
It's also risky to co-sign a loan, which can have the same impact on your credit as sharing a joint account.
3. Avoid Applying for Credit Together
If you want to apply for a credit card or loan, you may be better off doing so independently. If you apply together, your partner's poor credit could result in higher interest rates, poor loan terms or even an outright rejection. You should use your own good credit to negotiate the best terms.
"Banks remain wary of making loans to borrowers with tarnished scores," says Gulbransen. "And low scores can deny one access to a mortgage."
Even adding your partner as an authorized user on your credit cards can be risky if your partner runs up your credit card balances. That's because the amount of debt you owe can directly impact your credit scores. (Plus, the primary accountholder is the one responsible for actually paying the bills.)
4. Work on a Credit Improvement Plan
Poor credit doesn't have to doom a relationship. It can be challenging, but you can help your partner by understanding their situation and working together to create a credit improvement plan.
If you're both committed to the relationship, you may want to merge finances and share financial decisions in the future. The best way forward is to openly discuss what led to your partner's poor credit, and come up with a plan to improve it together.
The details of the plan will depend on the factors contributing to your partner's poor credit score. Improving their credit score for your partner could require monitoring his or her credit report, building a solid history of timely payments and paying down debt. There are also a number of tools, such as secured credit cards that are ideal for people who have struggled with managing their credit. And, if your beloved discovers their credit is being affected by a boatload of errors, credit repair could be an option.
Bottomline: By working to improve your partner's credit, you can both move toward a greater financial future together.