Marriage means that your furniture, pets, family and friends co-mingle, but not your credit scores – at least not in the way that you might think. Bruce McClary, credit counselor for Clearpoint Credit Counseling Solutions, underscores the need for the individual scores of both spouses to stay on the high-high end. Your credit scores don't get combined when you get married, but when you approach a lender in hopes of buying your dream home, your credit scores – and your credit history – go under the proverbial microscope.
Your Credit Scores
"There’s no real rule across the board of how lenders treat joint applications for mortgages insofar as the credit score issue, which makes it a little more complicated for the consumer," McClary says. However, as a rule of thumb, lenders place more emphasis on the credit score of the higher wage earner in the family. The score lenders look at is the FICO score – a number derived from a scoring system developed by the Fair Isaac Corporation – to assess the creditworthiness of you and your spouse. Whether you and your spouse both qualify for a mortgage depends on that three-digit number, which can range between 350 and 850.
Scores You Need
With foreclosures still on the uptick, lenders can afford to pick and choose. You and your spouse should strive to obtain the highest credit score possible. "A FICO score of 750 plus gives you the golden key to the best interest rates," says McClary – anything less may put you in a second-tier rate. A score of 620 or lower places you in the subprime category, giving you the worst possible interest rates. However, a FICO score lower than 500 is something that even the most usurious subprime lender would only poke at with a barge pole. “From the perspective of a counselor, having a score below 500 is a rare thing," McClary explains. "Your credit really has to be tanked to be in that range. Then you’re dealing with severe credit issues that could take a long time for you to recover from."
Your credit health may be glowing. But if your better half doesn't have the best credit, this could preclude him or her from a joint mortgage. In this case, one option is to simply put home ownership on the back burner until both credit scores are in the pink. However, if you're anxious to get into your own digs, the spouse with exemplary credit can assume responsibility for the note and both spouses can be listed on the property deed. It's vital to understand the difference between these two documents. A deed is a legal instrument used to convey interest, or ownership, in real property; however, it doesn't bind the non-mortgage holder to the debt incurred by its purchase.
Sole Mortgage Holder
There are pros and cons to be considered if only one spouse qualifies for the mortgage. “This can be a sticky issue, when it comes to the fact that the financial burden is left squarely on the shoulders of the one who signed the note," McClary says. An informal agreement between spouses that both pay the house payment can be problematic if the non-mortgage holder decides not to contribute to the note. Additionally, when only one spouse applies for a home mortgage, only his or her income is considered during the lending process. This can limit the size of the home you get – as well as the number of lending options available.
Brushing Up Your Credit
If home ownership is your joint goal, McClary stresses the importance of pulling your credit reports from all three reporting bureaus a year before you even think about approaching a lender for a mortgage. You can order your credit reports through AnnualCreditReport.com without cost once yearly. Take a look at what needs to be fixed. According to McClary, some 70 percent of credit reports contain inaccuracies. Dispute these with the credit bureau promptly. Now take a look at what else you can fix. Public records such as bankruptcies, previous foreclosures and court judgments linger on your credit report for at least 10 years. But most old debt is reflected on your credit report for only seven years.
When it comes to the credit you and your spouse need to purchase a home together, forewarned is forearmed. McClary says he sees a lot of starry-eyed newlyweds whose dreams of home ownership are dashed when they find out that their credit doesn't meet the rigid criteria lenders demand. "When there’s any kind of issue that comes up with the credit, seek help from a HUD-certified housing counseling agency," he advises.
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