By FPA members Elaine King, CFP®, CDFA™ and Philip Herzberg, CFP®, MSF
Last Updated: March 29, 2010
A study done by the Wharton School at the University of Pennsylvania and Northwestern University states that opposites attract even when dealing with finances1.
Odds are you married your financial opposite. This statistic is actually a good one when dealing with finances. Having different points of view when dealing with finances will force you to evaluate the advantages and disadvantages of different aspects of money. One important aspect is managing debt. Research has revealed that over half of newly married couples report having significant marital problems before the end of the first year, with a sizeable portion of these dilemmas attributed to budgeting and handling debt.
Credit card use between newlyweds is one significant personal finance source of tension, particularly if one spouse likes to use credit and the other does not. So what's the key to success? Manage your finances together, hold each other accountable, and have an end goal in mind.
Effective communication is essential before couples tie the knot, with initial serious money conversations taking place at a table with both sides disclosing their savings, investments and debt figures. A pivotal part of this discussion should focus on current and future budgeting, especially about how to handle debt and credit cards going forward.
The recent Credit Card Accountability, Responsibility, and Disclosure Act (CARD) of 2009 now requires credit card companies to also communicate more with consumers who utilize credit about the cost of using their services. These CARD reforms will make it easier for newlyweds to see how much credit is costing them, and can ultimately facilitate goal-setting of paying off individual or combined debts sooner.
In consideration of this timely CARD reform, the following relevant credit card insights are important for couples planning to marry:
- Credit reports are not combined when you marry. Credit reports are based off each person's individual Social Security number. Thus, your credit reports and histories do not merge together when you get married. Be careful when commingling debt, it is not advisable if your spouse has a poor credit history.
- Marriage does not automatically change your credit scores. The act of getting married does not affect your credit scores. There are no subsequent automatic changes on your credit reports when you get married. If you change your last name after you married and report this change to your creditors, you will see some updates to your existing credit reports. Your credit history is not erased.
- Your spouse's negative credit history cannot hurt your credit score. Only when you open a joint account can your spouse's poor credit affect your credit score. Your spouse's negative past credit history has no affect on your credit profile when you get married. Should you plan on buying a home together or consider other significant purchases in joint accounts, your spouse's weak credit profile could impact your mortgage or lending rates.
- Having your spouse add you as an authorized user on credit cards may or may not raise your credit score. You need to call the creditors with the specific request to be added to your spouse's credit cards. If the lender does not report authorized user accounts to the credit bureaus, then those accounts will not influence your credit rating and not show up on your credit report.
In light of recent CARD changes, you should still keep a credit card or two in your individual name, even if you decide to share a few high-limit credit cards. Not all credit card scoring models count authorized user accounts. One potential caveat to keep in mind is that as a result of possible marriage discord years later you can be dropped as an authorized user and lose years of favorable payment history on these accounts.
If you and your newlywed spouse are struggling to keep credit card debt at bay and credit scores stable, you should not rush to close your credit card account if your credit card company starts to impose annual fees or miscellaneous kind of fees. Credit ratings favorably factor in long account histories, so you should think cautiously before closing accounts to simply avoid paying a $50 annual fee.
Here are some more helpful tips and advice of how new couples can be smart credit card users with the new CARD regulations:
- Review the terms and conditions of each credit card to understand what type of card you have (fixed-rate vs. variable). Rules are different for each card.
- Make a concerted effort to pay off your credit card balance each month. Paying off your credit card balance each month is the best way to avoid paying interest.
- Ensure you make at least the minimum required payment each month to avoid a late penalty charge, or a missed payment that can severely impact your credit score.
Shop around and compare cards to peruse the lowest rates and fees and highest limits. Different credit cards can carry lower interest rates and better terms. Call and request for a lower interest rate, especially if you have a very good relationship and credit history of making payments on time with your issuer.
A good source for credit card guidance for new couples is your local credit counseling service. Find a licensed credit counselor in your area at the National Foundation for Credit Counseling.
Don't be a statistic. If you want your new relationship to last and most arguments are related to financials, beat the odds and start to plan early even beyond managing debt. Also, think about how you are going to manage savings, invest together and plan for your estate. For more information visit FPAforFinanciaPlanning.org.
Hopefully, by knowing the rules and being aware of your personal financial needs, you and your new spouse can effectively communicate and work out your credit card situation, and be well on your way to marital bliss!
FPA member Elaine King, CFP®, CDFA™, is Vice President, Director of Wealth & Well-Being at Gibraltar Private Bank & Trust. FPA member Philip Herzberg, CFP®, MSF, is Director of Media Relations & Public Awareness for FPA of Miami-Dade.
1Wharton School at University of Pennsylvania and Northwestern University Study "Fatal (Fiscal) Attraction: Spendthrifts and Tightwads in Marriage" (February 2009). Also, cited in August 25, 2009, CNNMoney.com feature "Are You Married to Your Financial Opposite?"