If I Have Bad Credit, Will it Affect My Partner?
Updated: November 16, 2023 Author: Paul Gillooly
Quick answer: Having a shared address with your partner or getting married won’t affect their credit score. If you have shared bank accounts with them or a shared credit agreement, this can affect their credit score.
Anyone with a bad credit score will want to avoid negatively affecting their partner’s credit, especially if their partner has a good credit rating.
If I have bad credit, will it affect my partner?
Bad credit can have an impact on your partner, but only in certain circumstances involving a joint finance agreement or a joint current account. Living at the same address does not have an impact on your credit report, nor does marriage. Having a “financial association” with your partner does.
What is a Financial Association on my credit report?
A financial association is created when you and another person open a credit account together, or both sign a joint finance agreement. When a joint credit agreement is created, both people are linked together on each person’s credit report.
Credit reports have a section containing financial associations. Financial associates can remain on your credit report indefinitely.
Different credit referencing agencies have different approaches to how long they keep this information for. Experian may automatically drop them after a certain period, whereas, Transunion and Equifax will keep a record of financial associations indefinitely unless you sever the link by requesting a notice of dissociation.
How to request a Notice of Dissociation
A notice of dissociation is a formal request sent to each credit reference agency to have a financial associate removed from your credit file. Financial associates can only be removed from your credit report once there are no joint credit agreements or joint accounts active. Be prepared to provide evidence that the financial link is severed.
You may be asked to provide proof of a joint account being closed, such as a new current account in your own name with only your income and bill payments being paid out. If you have had a joint mortgage, proof of a transfer of ownership or the sale of the property may be requested, such as if you buy your ex-partners share in the property to become the sole property owner.
In the case of separation and divorce, child maintenance payments do not constitute a financial association.
If any joint credit agreements remain active, a notice of dissociation will not be approved. For an application to be successful, make sure that all joint credit accounts have had the outstanding balances settled and the accounts closed before requesting to de-link a person from your credit report.
Do lenders check the credit report of your financial associates?
When you apply for credit, a hard check is run on your credit file. Lenders are able to see the financial associations that you have. This section of your credit file will list the names of everyone who has ever been a co-signatory to a credit agreement you’ve taken out, be that a loan, a joint current account, or joint mortgage.
Lenders can go deeper and check the credit history of your financial associations. This would be a soft-check, meaning it would not leave a foot print on the credit file of your financial associates. However, the lender would be able to see your partners current credit accounts, the total amounts outstanding, and if they have any derogatory insertions from creditors, such as CCJs (Decree in Scotland) or late payments.
Lenders only co-score both applicants when a joint application is made. Otherwise, the hard check is done on the applicants’ credit file only.
This part is important because lenders will be able to see the total outstanding balances on credit accounts that both people have.
When applying for a large loan such as a mortgage or remortgage in joint names, both people are assessed based on not just the credit score, but also the income levels and outstanding debts. This is referred to as a debt-to-income ratio. A 50% debt-to-income ratio tells a lender that half of the household earnings is being used to pay down debt balances. When half of earnings are being paid out on bills, it leaves just half of the household earnings to cover living expenses.
A reasonable debt-to-income ratio is below 35%. Any higher signals that there will be little disposable income left. If circumstances were to change, such as if one person were to lose their job, financial difficulties would likely follow. This is what lenders are assessing when looking at credit reports. The risk factor.
Prior to applying for joint credit, good practice is to add up all outstanding debts for both applicants, and check both credit files to see what is being reported to each credit reference agency (CRA). Not all creditors log details with credit reference agencies, and not all will submit the details to all CRA’s.
Are joint finances a good idea?
There are two sides to being co-scored by lenders when one person has bad credit. While it is likely to lower the score of the person with good credit, it works in reverse too. It gives the person with bad credit a boost.
The lower the amount of a loan or credit account being applied for, the more likely it is to be approved. Credit card providers who may refuse a single application based on a poor credit score, may be more inclined to approve a credit card application with a lower initial credit limit that builds over time when they see a financial association with someone whose credit report is in good standing.
The only time a joint account – or doing anything that creates a financial association with your partner is a bad idea – is when the bad credit rating is because of a serious default such as a CCJ (County Court Judgment), or bankruptcy. When those are on your file, nothing you do is going to improve your credit score by much. Even paying the debt and having the CCJ marked as satisfied won’t suddenly get you access to good credit deals. It’ll look better to lenders, but it is still a severe negative entry.
The only thing you can do when you have serious defaults is wait it out. They remain on your credit report for six years, then drop off. That is unless you take action to rectify it, such as including it in an IVA (Individual Voluntary Arrangement). An IVA also stays on your credit report for six years, from the date it commences. Not the date of a CCJ being issued.
That means, if it’s been five years since the CCJ was issued, taking out an IVA could stain your credit report for another 6 years. 11 years of poor credit, instead of 6-years. Always take professional financial advice before entering into any long-term finance agreements.
In the meantime, while negative entries are hindering your ability to access credit, you can still be building credit by accessing more suitable finance. Specialist lenders cater exclusively to people with bad credit, offering loans, credit cards, car finance, and credit builder accounts.
How bad credit impacts household finances
Bad credit can have a significant impact on household finances. As an example, energy providers run a credit check before agreeing to take on a customer paying by Direct Debit. If a credit file shows another utility provider recording late payments, they may refuse a credit account, requiring a pre-payment meter to be installed instead; locking you out of better deals for gas and electricity.
The same can happen on broadband contracts and mobile phone contracts. If the provider sees a history of missed or late payments, they may ask for a deposit covering 6-months or more of the contract term upfront, or perhaps as a refundable deposit.
Credit accounts from service providers tend to look at payment history information rather than outstanding debts. They have a less strict criteria for approving credit accounts than a lender has when assessing credit-worthiness for a loan. This is why having a mobile phone contract is considered good practice for building your credit score.
In a marriage, does one person with bad credit affect the others?
When you get married, your finances do not become linked, nor do you take on the responsibility of any debts in your partner’s name.
The only debts that become linked during a marriage are the debts taken on jointly. Meaning, both partners sign the finance agreement.
Any previous debts remain the sole responsibility of the signer. If there was a co-signer, that person will be jointly liable for the debts.
Debts are personal to the person whose name is on the credit or loan agreement. Only when both names are on a jointly held account or credit agreement, are both people responsible, whether married or not.
Importantly, your marital status is not a part of your credit report. Only your financial associates are and that only happens when you obtain joint credit or open a joint bank account. (Current account, not a savings account as those do not have credit facilities such as an overdraft).
Getting a joint mortgage when one person has bad credit
Getting a joint mortgage may be a necessity to get past the affordability check barrier. It makes sense to combine incomes and apply for a mortgage based on the household income rather than only your own. Lenders typically limit the amount of mortgage products to 4x the annual salary.
When an application is made for a joint mortgage, a hard check on both applicants will be performed (co-scoring). When one person has bad credit and the other good credit, legacy lenders like highstreet banks may not approve the finance. Often is the case, they want as zero-risk as possible.
Sub-prime lenders use a rate-to-risk approach when making decisions about approving finance or declining. What this means is that they will investigate the credit reports of both applicants on a joint mortgage application, assess the level of risk from the person with bad credit, weigh it against the income and credit-worthiness of the secondary applicant, and then decide on an appropriate rate of interest.
As an example, a typical interest rate may be 6.9% for a large sum being repaid over decades with a legacy lender, but in the sub-prime market, you may be able to get approval at a slightly higher rate of interest and possibly a higher deposit being required.
Can I get added to my partners mortgage with bad credit?
Mortgaging and remortgaging are instances when credit files really matter. Lenders will go through the same process as a new applicant by running through an affordability check and a credit check.
When any of the credit reports flag a history of bad credit, it may mean the application does not meet the lenders criteria, resulting in a refusal, or an offer for a different type of product with a higher interest rate to counter the risk to the lender.
Additionally, adding a second name to a mortgage involves a transfer of equity – a legal process that should be done through a conveyancing solicitor after getting financial advice.
An alternative to adding a person with bad credit to a mortgage is to inquire about a joint-borrower, sole proprietor mortgage with someone else who has a good credit score.
What is a Joint-Borrower, Sole Proprietor Mortgage?
A joint-borrower, sole proprietor mortgage is a specialist mortgage product intended to help a homebuyer meet the affordability checks of lenders. It is for a single person to buy a home with the help of someone else’s financial backing. Usually, parents and/or grandparents.
The difference with this in comparison to a joint mortgage is the sole proprietorship aspect. Only one person’s name is on the title deeds. The person living at the address. All other signatories on a joint-borrower application assume the financial risk, but they do not have any corresponding rights to the property as their names are not on the title deeds.
A joint-borrower, sole proprietor mortgage can have up to four people combined with only one person on the title deeds. Each person named on the application will be assessed by the lender to make sure they meet the lenders criteria so it is helpful for applicants to have a good credit score.
Where this is helpful is if you have bad credit and your partner wants to buy a property with you, you can ask a parent or grandparent for assistance while you work on boosting your credit rating.
Tips on sharing finances when one has better credit than the other
When one person has a good credit score and the other has poor credit, work together to boost the low score.
All credit builds credit. Joint finances work best when both people have good credit ratings. All the things that contribute to building a credit rating quickly like paying on time, paying down debt balances, closing unused accounts etc., don’t do much for someone with good credit. All the small steps combined will help someone with bad credit improve.
It is possible to be approved for a credit card with bad credit, then you can pay the balance in full each month. You can also have household bills put in the name of the person with bad credit, then pay by Direct Debit, on time, every month.
Have a look at the credit accounts on both credit reports and see what companies are listed. If there are entries such as a mail order company on the credit report of the person with good credit, check if the person with bad credit could be approved for the same account. If so, open one then use the new account for orders that would be placed anyway and pay that on time too. The extra credit builds the credit score of the person with bad credit.