Question: “I have excellent credit. But my husband has bad credit. We want to buy a house together, using our combined income. How will his credit situation affect our chances of getting approved for a home loan? Can we just use mine?”
For richer or poorer, in sickness and in health, and with good credit or bad. Marriage is all about sharing!
All jokes aside, here is the short answer to your question:
If you plan to use both incomes to qualify for a loan, the lender will probably look at both of your credit scores as well. If they only looked at your excellent score, you would have an easier time getting approved and would probably qualify for a great interest rate. But your husband’s low score will likely come into the picture, and it could affect your ability to secure financing. It could also cause you to take on a higher rate.
Here’s the longer answer to your question:
When you marry somebody, your credit scores remain separate. Yours is yours, and his is his. They do not merge in any way. You share everything else in marriage — just not your credit scores.
Of course, if you apply for some kind of financing as a couple (like a mortgage loan), the lender will review both of your scores. They do this to see how both of you have borrowed and repaid money in the past. But they’ll also look at your combined income, and that could work in your advantage in terms of securing a loan. So it often becomes a tradeoff. Having two incomes could help you qualify for a loan, while the lower credit score could create problems. It all comes down to how the lender views you as a “total package.”
This is actually a common scenario. A lot of married couples are in the same situation as you. One person will have excellent credit, while the other spouse will have bad credit. But they want to use their combined incomes in order to qualify for a certain loan amount. The bottom line is that if both names are on the loan documents, and both incomes are being used to qualify, then both credit scores will be reviewed as well.
There’s an article about this on myFICO.com, a website owned by the company that created the FICO credit-scoring model. Here is what they said to someone asking the same question as you:
“Even if your wife’s good score would qualify her for a loan with a good interest rate, your bad score may mean that, as a couple, you would only qualify for a loan at a worse interest rate. If your score is very bad, you may not qualify at all.”
Can You Get a Loan on One Income?
If your spouse’s credit is so bad that it will affect your ability to secure financing, you basically have two choices. One option is to apply for the loan by yourself, using only your income to qualify. The drawback here is that you’ll qualify for a lesser amount, when using a single income instead of two.
You could also wait until your spouse has a better credit score, and then apply for a loan. How to improve a score is another lesson entirely. In short, it is best accomplished by paying all of your bills on time, and by reducing credit card usage and balances for a more favorable “utilization ratio.”
Having a spouse with bad credit is not necessarily a deal-breaker as far as mortgage loans go. The lender will consider the bigger picture, including your income stability, employment, debt-to-income ratio, and other factors. But it does require some extra consideration on your part. Hopefully this article gives you some things to consider. Good luck to you and your spouse in your home buying ventures!