Mismatched Spouses
Buying a House with Bad Credit
By Daniel Muniz

One common myth is that marrying someone with bad credit will ruin your own good credit. Such a belief is blatantly false because credit is solely based on the reported transactions and history of a single person. Nothing in your credit report is merged or mixed together just because you get married. As long as you don’t affix your name to a joint account or co-sign a loan for someone else, then there is absolutely no way that your good credit score can ever be tarnished by the irresponsibility of another person.

But what about purchasing big ticket items like a house with a spouse who has bad credit? How do you get around that?

The answer to that question is that you don’t.

Although you can escape the prospect of having your pristine credit rating ruined by your beloved, you are still going to experience the limitations of your other half’s bad credit when it comes to purchases that require two incomes.

There are certain exceptions.

For instance, housing in the Sunbelt and in the Southwest, even for quite a bit of square footage, is ridiculously cheap when compared to the rest of the country. If you have a decent salary and good credit, it is very possible to get a mortgage under one name using a single income.
 

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I live in Texas and that is exactly what I did every time I bought a house. The mortgage is exclusively under my name and it is reported as such to the credit bureaus while the deed of the house includes my wife’s name. In fact, whenever it’s possible, lots of people in these parts of the country are strongly encouraged to buy a house in that manner so that it frees up the debt ratio of the other spouse.

And the reason for this arrangement is because once your spouse is legally obligated to a debt, it doesn’t matter whether or not he or she is making the entire mortgage payment or none of it, the credit bureaus will still treat it as if that person is paying all of it when a credit score is generated. But with only one spouse tied up in a mortgage, then the other one is now able to get better financing terms because the house payment will not show up on his or her credit report. Simply put, freeing up the debt ratio makes it easier for the other spouse to get better credit.

But for everyone else living in parts of the country where real estate is outrageously expensive, you are out of luck.

In that situation, if you cannot get a mortgage solely under your name, then you won’t be able to buy the house you really want. And lenders will not allow you to only use your good credit and ignore your spouse’s bad credit while still relying on the combined income. When banks loan out money, they expect it to be paid back (imagine that) thus they want to know if both of you have the capability as well as the history of exercising responsible credit behavior.

And it is useless to rant and rave about how unfair it is that your future spouse has a lousy credit score or accuse the credit bureaus of being evil organizations.

The credit scoring system that is in place is what everybody is already using in today’s modern financial environment and it is a standard part of all the lending that takes place. Consequently, this means that your beloved is going to have to step up to the plate and fix his or her credit problems.

But more importantly, it also means that you must have a serious talk with your bride or groom about the future, especially about the reality of finances and money management. It is better to get a grip on this reality right now so that it doesn’t explode into a huge marital problem further down the road.

However, lots of people with bad credit don’t want to talk about their credit problems but with like so many other problems, the only way to solve it is to directly examine the issues and confront it in an objective rational manner.

For instance, unpaid charged off items or unpaid judgments have to be paid or have a settlement negotiated (oftentimes, you can get such a debt settled for a fraction of the original amount). Whatever bad credit items remain on your other half’s credit report will have to be fixed or at least minimized using credit repair techniques.

The next step is to rebuild credit. And that is the part where examining both of your financial futures comes into play. Whatever situation created your beloved’s credit mess cannot be repeated again especially if both of you want a house. Exercising responsible credit behavior has to begin immediately and applied to every single transaction from this point forward. There are still a lot of things of a credit nature that can be controlled, like your future spouse getting a secured loan and then paying it back on time for every payment, etc.

However, this serious talk should never be done in an accusatory manner regardless of what happened in the past.

Right now is the time for a fresh start with a new beginning. It is unfortunate that the hopes of buying a house at this moment are dashed but that doesn’t mean that you can never get a house. It just takes time to repair and rebuild credit, which may take a few years. And that is fine because debt can be paid off while a nice down payment is being built up.

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COMMENTS FROM READERS

I'm planning on getting married this year and my fiancé has bad credit. I have excellent credit (according to the 3 major credit agencies). My mortgage is in my name so I'm not worried about purchasing a new home in the near future, however; my concern is I would like to take his last name. If my last name changes, how will that affect any purchases I make, or him and I together? -Brenda Author Responds: The last name is irrelevant. The moment you become part of a joint account, you are on the hook for anything that the other account holder does.