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Partners
A reader recently asked us a question as she is about to get married and her partner has significant debts. She wanted to know if this would affect her credit score.
How you are married can have far-reaching financial consequences, therefore it is important to understand the options available to you before walking down the aisle.
When you get married you will probably want to buy a house jointly, and for that you need to consider each other’s credit scores. If you have kids, for example, schools now go to the extent of checking parents’ credit worthiness, yikes!
If you and your spouse have different credit scores it may affect any joint applications for credit.
Nevertheless, the extent to which your spouse’s credit record and history affects yours depends on the type of marital contract you have in place.
If you are married out of community of property, meaning that each spouse retains his/her separate property and has complete freedom to deal with that property as he/she chooses, your partner’s past financial behaviour will not affect how banks or lenders view your own.
But if you are married in community of property it means that you and your partner are equally and severally responsible for any debts incurred before and during the marriage.
In other words, if you can’t pay your debts your creditors can legally recover the money from your spouse and visa versa.
Also keep in mind that should you or your partner apply for debt review both spouses must enter debt counselling as the debts are shared.
I must mention that community of property is the default marital regime in South Africa, and if you do not sign an antenuptial contract, you will automatically fall into this regime.
And because it is the default, community of property is the cheapest and most popular regime of marriage.
If you do not want to be married in community of property, you need to see a notary before signing with the department of home affairs.
So how do you ensure that you do not “inherit” your partner’s debts or bad credit history?
You first have to talk about money before you get married.
You have to decide which marital contract will suit both of you best. Money is such a big part of our lives and yet even in intimate relationships partners are hesitant to talk about such a pertinent topic.
Think about it, would you be married to the person you are married to today if you had known their credit score (or financial behaviour) while you were dating or courting?
A credit score is a history of your financial behaviour with credit. Having a healthy credit score informs the lender – the bank – whether to grant you a loan and at which rate to lend you money. This is because whether you are applying for a home loan or vehicle finance, your creditworthiness is checked before a lender considers your application.
Should you have a good score, the bank will probably grant you the loan and at a lower interest rate, meaning that the debt or loan will not be too expensive.
On the other hand, should your credit score be poor, you run the risk of your loan not being approved or if it is approved the bank or lender will charge you a high-interest rate, thereby making your loan very expensive.
A poor credit score is a culmination of various bad financial choices, from missing or skipping payments to paying the bare minimum on credit cards, among other things.
When you have a bad or low credit score, it means that banks or lenders see you as having more risk of defaulting on your financial obligation and therefore they charge you a premium in the form of a high-interest rate.
According to TransUnion, the following bands are defined for the score:
- EXCELLENT: 767 – 999
- GOOD: 681 – 766
- FAVOURABLE: 614 – 680
- AVERAGE: 583 – 613
- BELOW AVERAGE: 527 – 582
- UNFAVOURABLE: 487 – 526
- POOR: 0 – 486
