Two people can live as cheaply as one -- at least that's the saying. If you're not ready to tie the knot quite yet, but you do want to start living together, you might be thinking about pooling your finances and acquiring assets jointly. You might even be thinking about buying a home together. While two people can buy a home together, your credit scores will remain separate.
Your individual credit scores will remain separate -- even after you're married. There is no such thing as a joint FICO score. However, that doesn't mean that what you do doesn't affect your significant other. If you have opened a joint credit card account, and he forgets to make the payments or skips one altogether that will affect your score. If none of your credit accounts or loans are joint, then your scores won't be affected by each other's actions.
Credit cards can be issued jointly, in which case each of you would be entirely responsible for paying the account. A credit card application can also be co-signed by one partner for the other. A third alternative is to put one of you as an authorized user on the credit account of the other. Remember that an authorized user has no legal obligation to pay on the card even if he ran up most of the charges. You probably think you'll be together forever, but always keep a credit card in your own name. If the unthinkable happens, and you do split, close the joint cards immediately. Revenge buying sprees are not unheard of.
Mortgages are approved based on several factors: credit scores, steady employment, how much you get paid, other assets and other debts. Lenders prefer to have a debt-to-income ratio of 26 percent to 38 percent. Add up your credit card minimum monthly payments, car loans, the mortgage payment and any other payments. Divide that total by your total income to see if you're in the acceptable range. A word to the wise: The lender will not take an average of your credit scores, but will use the lowest one to determine the interest rate. So if yours are 795, 800 and 820 and his are 695, 750 and 770, the 695 will be used.
If one of you has a stellar credit rating and the other not-so-much, the former should apply for the mortgage. The latter can go on the deed but not on the mortgage.
If as an unmarried couple you buy a home together you must share the $1.1 million limit on deductible mortgage debt when you each file your taxes. That may sound like more house than you can handle but if you're thinking of buying a residence in pricey areas it could be reached sooner than you think.
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