Getting Proper Credit in Spouse’s File
Question: I recently requested TRW credit profiles on both my husband and myself. Although all of our debts (including bank cards and auto loans) were applied for jointly, most of the credit history was reported in his name only. Is this legal? What is my credit history in the event of a divorce? Also, how do I go about getting these creditors to report our credit history in my name too?--E.McN.
Answer: The fact that “most” of the credit history was reported in your husband’s name (but some of it, apparently, showed up in both your names) suggests to Delia Fernandez, consumer affairs officer for TRW Information Services, that your marriage goes back before 1976.
That was the year that Congress passed the Equal Credit Opportunity Act, which made it mandatory for all credit grantors to consider all applicants equally, regardless of sex, race, marital status or what-have-you. At that time too, all credit grantors had to offer all women the opportunity to have their credit history reported under their names as well as under their husband’s.
Notices were duly send out to everyone to this effect, and, unfortunately, a whale of a lot of women (and men too) didn’t understand the significance of the opportunity and put the notices under the cat’s feeding dish. After ‘76, all credit histories were supposed to be reported under both names.
But, Fernandez warns: It doesn’t necessarily mean that it worked out that way in practical terms.
“The computer doesn’t understand prefixes such as ‘Mr.’ ‘Mrs.’ and ‘Dr.,’ and so it simply drops them,” she explains. “So, even after ‘76, if they opened an account somewhere under ‘Mr. and Mrs. John Jones,’ it’s still going to show up as plain ‘John Jones.’ ”
What you’ll have to do, Fernandez advises, is notify each creditor that is reporting your history under your husband’s name that, under the terms of the Equal Credit Opportunity Act, you want this joint account reported under your name too, as “John and Mary Jones” (again, not “Mr. and Mrs. John Jones,” which does nothing for you).
“It’s very important that all married women do this,” she continues. “Otherwise, in the case of death or divorce, the wife is suddenly going to have no credit history at all.”
Q: My adjustable-rate mortgage’s (ARM) original interest rate was 10 3/4% and is now being adjusted monthly based on the Federal Home Loan Bank Board’s index plus two points.
Since this would result in negative amortization I’ve been paying the additional interest each month with the entire payment being interest only. Would you comment on paying the loan in this manner versus following the lender’s plan of a set payment each month based on 10 3/4% interest for the first three years and an eventual full amortization of the loan due in 30 years? There is a 7 1/2% cap on monthly payment increases and a 5% interest-rate increase cap.
I have the money to pay the additional interest each month, and the tax deduction for the increased interest is beneficial to me.--J.A.G.
A: Your lender’s “solution” for getting this negative amortization albatross off your neck escapes me, somehow. If the original term of the ARM (10 3/4% and adjusted monthly two percentage points above the FHLB index) is--logically enough--resulting in negative amortization, now, how on earth is the situation improved by freezing your interest at 10 3/4% for the next three years?
It looks to me as if this arrangement simply accelerates your negative amortization for three years at the end of which time there’s going to be a jarring return to reality when the whole thing is suddenly shifted into high gear with an overnight return to full, positive amortization.
All you are doing under this arrangement is standing pat. In three years, if you merely keep paying on an interest-only basis, you’re going to be exactly where you are now: not owning a dime of equity in your home.
Sure, the tax deductibility is “beneficial” in about the same way that it’s “beneficial” to be in hock for money that you borrowed for the purpose of buying non-dividend-paying stock.
I’m entirely too Scotch in my upbringing to take any joy in making stiff monthly payments on, say, a $100,000 house only to end up, three, four or five years later, still owing $100,000 on it--I’ve got to have at least a little equity in it at the end of that time or I tend to get very edgy.
If you’ve got the wherewithal to pay out all of this extra money every month just to avoid negative amortization (which means that you’re simply treading water), then you’ve got the wherewithal to go to immediate positive amortization.
Sooner or later you’re probably going to want to consider selling this house. The course you are on now means that unless there is an appreciable increase in the basic value of the house (no certainty in these days of flat real estate prices), you are going to be selling it as a loss, once selling costs are factored in.
And a loss in the sale of your principal residence is not a tax deduction, “beneficial” or not.
