Millennial Money: How stay-at-home spouses can build credit
Spouses share a lot, but no matter your relationship status, your credit score belongs to you and you alone. Even if you're 100% supported financially by your spouse or partner, establishing and building your own credit score is essential.
It can benefit you both as you navigate financial decisions together. But should you divorce or your spouse die, having good or excellent credit can help you as you begin to make financial decisions on your own.
Besides, maintaining some money independence can keep you both on equal footing in your relationship.
"A household's financial dependence on one income earner can foster unhealthy relationship control dynamics," said Katherine Fox, a certified financial planner, founder and adviser at Sunnybranch Wealth in Portland, Oregon, in an email. "Stay-at-home spouses who take steps to protect their credit score and financial literacy are doing their part to maintain a healthy money attitude and dynamic within their relationship."
Why your credit score is equally important
Any time you and your spouse apply for a joint loan, like a mortgage, both of your credit scores get evaluated by the lender. Lenders may use the person's score that falls on the lower end to determine your eligibility. Ideally, even the lowest score between you both is still in good shape because this can affect what loan terms, like interest rates, you'd qualify for together. A lower credit score can make borrowing money more expensive.
Your credit score also comes into play when you apply for a credit card in your own name, which you can do even if you don't earn an income. So long as you're 21 or older, you can include your spouse's income on the card application.
Moreover, unexpectedly becoming single again is the most difficult reason nonworking spouses need to build their credit.
"Having a solid foundation will help you if you end up alone and need capital to get started," says Brittany Davis, a Memphis, Tennessee-based accredited financial counselor who is an associate financial planner for Brunch & Budget, a registered investment adviser. "I know some people are leery of credit and debt, but there are so many things credit can be used for."
Davis likens credit access to insurance -- it's something that's good to have, whether or not you need it at the moment.
Ways to build credit without an income
Besides applying for your own credit card using your spouse's income in your application, there are other ways to build your credit.
You can become an authorized user on your spouse's credit card. They'd be responsible for making payments, but if they pay on time each month and you both avoid charging more than 30% of the credit limit, over time this can build your credit score. Applying for loans under both of your names, like an auto loan or mortgage, can also be helpful as on-time payments will be reflected on both of your credit reports.
"At the very least, stay-at-home spouses should be a joint account holder or added to their partner's credit card to help them build and maintain their own credit score," Fox says.
Be sure to also pay other household bills on time, including utility bills and rent payments. In some cases, those are also reported to credit bureaus.
How you can affect each other's credit scores
Though you each have your own credit scores, your money habits can help or hurt each other, particularly when you have joint loans or share credit cards.
As a credit card authorized user, you're at the mercy of the primary cardholder's behaviors. If your spouse makes late payments, that can hurt your credit. You'll want to set a budget with each other, because when more than one person uses the same card, it's that much easier to overspend. Becoming an authorized user is an exercise in trust and communication.
Where you live can also be a factor in how you can each affect each other. According to Fox, in community property states, you're generally not responsible for any debts your spouse took on before you got married, but you're responsible for each other's debts after marriage. But in non-community property states, you only share responsibility for joint accounts and debts.
And if you're the income earner, proceed with caution before co-signing a loan for your nonworking spouse or any other loved one. It's not like a joint loan, where both parties share the burden of debt payments but can also share ownership of an asset.
"Co-signing is more of a risk in my eyes because you have no secured interest in that item you're co-signing a loan for," Davis says. "If that person fails to make payments, you become responsible for the loan, but you don't have an interest as an owner."