Let’s talk about debt, baby!
If you thought discussing income and assets was difficult, nothing shuts a person up faster than asking them about their debt. Especially the debts they can’t easily justify, like credit card balances and those “no money down, pay later” messes we sometimes get caught up in. A mortgage. A car payment. Student loans. Those debts almost come with a badge of honour. But consumer debt? Well, we really don’t like to talk about that.
We fear that admitting we have consumer debt implies we have no self-control, no discipline, and no real disposable income. We fear being judged as reckless, materialistic or merely less than.
Not exactly qualities you’d want posted on your website dating profile.
But if the goal of having the money talk with your potential lifemate is full financial disclosure, than this side of the balance sheet must also be discussed.
“We’re not worthy…”
The website Investopedia (www.investopedia.com) defines a person’s credit rating as “an assessment of an individual’s credit worthiness.” It takes into account not only income and availability of assets, but also history of borrowing and repaying debts. Laura Palmer, owner of Credit Information Services in St. John’s, says it’s a good idea for everyone to get a copy of their credit report periodically, if only to keep an eye on potential identity theft issues. It’s an even better idea to ask your partner to share their current credit report if you are about to merge your lives and your money on a more permanent basis.
The Good News
Whether married or common law, couples generally maintain separate credit records and histories. Unlike the merger of assets that occurs when people marry, debts and credit ratings do not merge when you tie the knot, a common misconception. A person’s credit history is unique to them and you do not assume the liabilities of another person just because you marry or decide to cohabitate. Each of your debts remain your debts, regardless of your marital status. Even if your partner were to declare bankruptcy, that would not directly affect you as either their common law partner or spouse. As long as all their debts remain solely in their name, their poor habits will not affect your credit rating.
The Not So Good News
The reality is that most couples rarely keep everything separate. Couples often share credit cards, bank accounts, mortgages and other financing arrangements. If you co-sign the application, you co-own the debt. And the activity associated with that jointly held account will appear on both your credit ratings. So if one of you runs up a balance on the shared credit card, legally you both are responsible for it. If the vehicle is in both your names and hubby decides not to make the payments, it’s both of you they will be coming after.
This is another reason why many couples are opting for the “Three Way” approach to managing their money. One account for joint bills, but separate accounts and credit cards for their own purchases. This ensures each of you have more control over your own credit rating on a go forward and are only responsible for your own debt, beyond regular bill payments that you have agreed to share, that is. Even if you combine everything in one savings and checking account, Rick Cullen of Janes & Noseworthy in St. John’s says you should keep some bills and/or credit cards in your own name to maintain an active credit history for yourself. Let’s face it, half of all couples don’t last. If you have not maintained your own credit history, starting over will be that much harder.
It’s all about moving forward.
Even if you keep your finances completely separate, a partner with poor credit may impact your ability to move forward. For example, buying a home is a major financial milestone for many couples. If both of your income is needed to qualify for the mortgage, but one of you has bad credit, that dream may be difficult to realize. Doing everything right credit wise also includes knowing the financial history and habits of the person with whom you are about to mingle your money.
When you decide it’s time to move your relationship forward - regardless of what that will look like for you - be sure you’re doing it with a financially compatible mate.