Before you decide to tie the knot, take stock of your partners’ financial habits, especially loan obligations
So you have finally found ‘the one’ and have decided to walk down the aisle. But before you tie the knot, make sure your partner’s credit history is not in shambles. Financial compatibility is something that often goes ignored amid the grand wedding preparations. For many families, the basic criterion to go ahead with a wedding is still the compatibility of horoscopes (if you are a Hindu) or the familial statuses. When two people vow to take each other in sickness and in health and in all other important aspects of life, why should the financial well-being of the parties involved be neglected?
Marriage is an important milestone in life. So, it has to be carefully planned for. Says Arun Thukral, managing director, Credit Information Bureau (India): “It is imperative that you know about the financial health of your would-be spouse. It does not imply that you consider marrying somebody solely on the basis of the income earned, but it is essential for you to know how well your prospective spouse is managing finances, or, for that matter, credit.”
Of course, there is change in the air. The current generation is relatively more cautious when it comes to taking big steps in life and that reflects in their matrimonial choices too. Says Kaushik Tiwari, head of marketing of Bharatmatrimony.com, “We have noticed that people look for increased financial stability and credibility when they search for potential partners and this is especially true for girls.”
The harsh truth. If both partners’ credit histories and financial habits don’t match, it will be an uphill task to build a financial future together. Say, if your prospective spouse has bad financial habits, it will be foolish to merge accounts or give access to your credit, like shared credit cards. The truth is, a flaw in the financial fitness of your spouse can haunt you especially when you apply for credit after marriage. Lenders do a thorough background check to see whether the information provided by you is true and also whether you have the ability to repay the loan. They will also look at your credit information report prepared by various credit bureaus.
Once you close a credit account, such as a credit card, home loan, car loan and so on, the details about how you handled the repayments stay on your credit report. If you have applied for a loan jointly, and your spouse has a low credit score, this can prove to be a roadblock in getting the loan sanctioned. Even if your application is approved, you may have to pay a higher interest rate because of your spouse’s bad credit record. Says Mohan Jayaram, managing director, Experian Credit Information Company of India, “When the lenders share information with us that you and your spouse have a joint loan, or you are a guarantor to a loan, the said account is flagged accordingly in the credit information report as joint, guarantor, individual and so on.” Before you co-sign anything with your spouse, do understand that a co-signer is fully responsible for repaying the debt if the primary borrower defaults. And the default will also reflect in your credit report since you are also a part of it.
Take the reins. If you are more disciplined among the two of you, take charge of the money-related aspects. Take over the payment of bills and the management of household finances. “If you have issued an add-on card, the primary repayment liability rests with you, and, hence, you need to ensure that the card is used within your repayment powers and the bills are paid in time,” advises Sanjay Patel, managing director and CEO, Equifax Credit Information Service.
Another way to ensure that your spouse’s bad credit doesn’t hamper your chances of getting a loan is to apply for it individually. But, in that case, your income and other assets in your name should be substantial enough for you to qualify as a single loan applicant. However, if you are applying for a hefty loan, such as a housing loan, as a single applicant getting the loan could prove to be difficult. Again, even if the loan is approved, it could be a small amount, based solely on your merit. And God forbid, if there is a legal separation tomorrow and the property or the vehicle you are paying the EMI for goes to your spouse, you will still be responsible for keeping your credit report clean by paying up till the tenure ends.
Therefore, it is always better to talk about and understand your partner’s money habits before the nuptials as the most common factor driving most divorces today is money. Says Jayaram “Discussing past and present financial commitments with your spouse is a good way to start your new life together. You could start by ordering copies of your credit information reports and going through them together.”
No credit bureau will give you your partner’s or anybody else’s credit report. You will have to ask your partner to share his or her credit report with you to take a look.
Path of redemption. If you think your chosen partner is the one for you, his or her credit history alone should not be a deterrent in making the commitment. Credit report and credit scores are dynamic and change in accordance with the credit behavior of the borrower. You can help your partner in cultivating financial discipline and improve his or her behaviour gradually. According to Thukral, “Once the borrower has paid all the delinquent EMIs and has started regularly paying the instalments on the loan, his credit report will improve and reflect the regular payments accordingly.” But this may cost you a lot of time and effort.
Once you have decided to tie the knot, you can help your would-be spouse pay his or her balances or transfer your spouse’s debt to one of your accounts with lower interest. But make sure that in doing so it doesn’t tarnish your credit record.
Unpaid bills mainly bring down your credit score. Says Patel, “Keep your mobile number and address updated in the lender’s records to ensure that all transaction alerts and reminders are received on a regular basis and spending can be checked before it is too late.” He adds that there are attractive options of converting large purchases to EMIs with lenders and can be used for ensuring that repayments are regular and on time. It’s a pity how all those happily-ever-afters never once mentioned a thing about bad credit!