Credit reports aren’t merged after you get married
Dear Liz: The day before my son got married, he proudly had a long-term 800-plus FICO credit score. The day after he got married, his FICO score became 600. It seems his new wife had many outstanding major debts incurred before the marriage. They live in a non-community-property state. How can he rebuild his credit either with or without a divorce?
Answer: Unless your son filed for bankruptcy the day after his wedding, the scenario you describe is pretty much impossible.
Our credit reports don’t get merged or combined when we marry. And it’s highly unlikely that any of the debts his wife incurred before marriage would be added to his credit reports unless he agreed to be added as a joint account holder or an authorized user.
As a practical matter, of course, he’ll want to help his new wife address these debts, since they’ll affect the couple’s life together.
But he’s not legally responsible for them. Because she incurred these bills before the wedding, they’re her separate responsibility in every state -- community-property states included.
An appointment with a marriage counselor might be in order if she actively concealed these debts from him. But they needn’t contact divorce attorneys to fix this problem.
They should probably make two more appointments, however: one with a legitimate credit counselor affiliated with the National Foundation for Consumer Credit (www.nfcc.org) and another with an experienced bankruptcy attorney. The counselor and the attorney together will provide a complete picture of her options.
By the way, just as there’s no such thing as a combined credit report, there’s also no such thing as a “long-term” credit score. Each score is a snapshot of your credit situation and changes as the underlying information in your credit reports changes -- which is basically all the time.
Consequences of walking away
Dear Liz: My son lives in an area where the real estate market took a major hit. His first and second mortgages total $320,000. The value of his home is now $180,000 to $200,000. He has a good job but is having trouble making ends meet. He can’t refinance, although if he could this would save him hundreds of dollars.
He is 34 and has talked about just walking away. His credit score is around 800, and he pays all his bills.
If he walks away, how long would it take him to reestablish his credit to buy another home? He has talked to his bank, but for the bank to help, he would have to have lost his job. Please provide advice on what he needs to do. He is getting frustrated living check to check.
Answer: This seems to be Concerned Parent Day.
Your son should first check with a housing counselor approved by the U.S. Department of Housing and Urban Development to make sure he understands all his options. He can find one at www.hud.gov.
A foreclosure or short sale (selling the home for less than what he owes, with the bank’s permission) would trash his credit scores, but with otherwise responsible credit behavior, he could begin rebuilding his credit to near-prime levels within a few years.
He could get another mortgage from a conventional lender two years after a short sale and five years after a foreclosure. He could get a mortgage from the Federal Housing Administration two years after a foreclosure.
Once he understands his options, he’ll still have to make a decision about whether he’s comfortable walking away from this debt. Many people believe they have a moral obligation to pay a mortgage if they possibly can.
How to build a credit history
Dear Liz: I’m 27 and a recent immigrant to the U.S. who just got a Social Security number. What’s going to be my initial credit, and how can I improve it as quickly as possible?
Answer: Until you actually apply for credit, your credit reports are likely to be a blank -- which is going to make getting credit tough.
The best way to start is probably with a secured credit card. You make a deposit with the issuing bank of $200 to $1,000 and get a card with a credit limit that’s the same amount. (You can find secured-card offers at www.cardratings.com, www.creditcards.com and www.indexcreditcards.com.)
As long as the bank reports the card activity to all three credit bureaus, that will help you build your credit. Use the card lightly but regularly and pay it off in full every month.
In addition, consider getting a personal loan from a credit union (again, one that reports to all three bureaus). Paying off the loan over time will also help boost your credit history and scores.
When your FICO scores reach the mid-600s, try applying for a regular, unsecured credit card to further increase your numbers.
Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston.com. Distributed by No More Red Inc.
