 "Pay heed to your spouse's credit score")
If you have a credit score of 750 or more, you may find it easy to get approval for loans that you apply for individually. But once you get married and apply jointly along with your spouse, the latter's credit score is also evaluated by the lender. Thus, your spouse's past financial behaviour has the potential to boost or mar your chances of getting a loan.
When both have a good score
If both, your partner and you, have a good credit score and continue to maintain it by making diligent repayments, taking a loan becomes easy. Your combined income and healthy credit profiles will enable you to qualify for larger loans at more attractive terms, including a lower interest rate. Given the good credit record, lenders are confident that the two of you have both the means and the willingness to fulfil your loan obligations.
When one spouse has a poor credit score
In such cases, the outcome depends on how poor the credit score is and the lender's evaluation method. There are a few lenders that look solely at the monthly income and not at the credit scores when processing loan applications. You may be able to secure a loan with them if both of you have substantial incomes but a poor credit history.
If your salary account or main transaction account is with a particular bank, approach that bank first. If your spouse has a poor credit score but a healthy bank balance or relationship, inform the lender about the reasons for the poor score. Some banks may be willing to give you a loan as they have insights to your financial history.
Spouse's score around 700: Your spouse's credit score may not be great, but it is certainly not very poor either. It is likely that public sector banks may not want to lend to you, but some other lenders may be willing. Your preferred bank may reject your application or lend a smaller amount at a slightly higher interest rate.
If you are the primary applicant with a moderately good score and much higher income while your partner, the secondary applicant, has a high score, the situation can work in your favour. Lenders may give you better terms. More importantly, your spouse's score will prevent a lender from rejecting your application. Bear in mind that a loan rejection too drives credit score lower.
Spouse's score in 500-600 range: While there is no magic number that guarantees loan approval, even in joint loans lenders prefer it if both applicants have a score of 750 or more. If your partner has a slightly lower score, it will raise red flags during the loan approval process. In the worst case, your joint application may be rejected.
Lenders are naturally nervous about lending to someone who does not have a good history of responsible financial behaviour. If at all a lender is willing to sanction a loan, you might be offered fairly unattractive terms and conditions like a higher interest rate or smaller loan amount. This happens because lenders want to impose tighter restrictions and thereby safeguard their money.
If you choose to apply for a loan with a partner who has a bad score, it will not affect your individual score, but your chances of securing the loan will be significantly compromised.
Is it a better idea then to apply for a loan on your own if your spouse has a poor credit score? Here, too, the answer is not straightforward. You could choose to apply individually, without your spouse's score having a negative impact on the lender's decision. While this may result in your loan getting easily approved, it could affect your chances of qualifying for a large loan amount. While you may be credit healthy, your single income may not suffice to get you the large loan amount that you are seeking.
If one spouse has a bad score and the other has no credit history, don't even think of applying for a joint loan as no lender will touch this kind of credit combination. Most lenders treat applicants with no credit history cautiously as they find it difficult to evaluate their credit worthiness in the absence of a record of past repayment behaviour. Improve your credit score and ensure that your spouse too builds a credit profile before applying for a loan.
Credit score assumes importance in a couple's life only later in the marriage when it is time to take a substantial loan, such as an auto loan or a home loan. Use your spouse as a co-borrower only if she/he has a better credit score or a significant income that will enable you to qualify for a larger loan amount. If you are newly-married, do speak to your spouse about her/his credit score and start taking immediate steps to improve it, if required.
The writer is CEO and co-founder of CreditMantri
When both have a good score
If both, your partner and you, have a good credit score and continue to maintain it by making diligent repayments, taking a loan becomes easy. Your combined income and healthy credit profiles will enable you to qualify for larger loans at more attractive terms, including a lower interest rate. Given the good credit record, lenders are confident that the two of you have both the means and the willingness to fulfil your loan obligations.
When one spouse has a poor credit score
In such cases, the outcome depends on how poor the credit score is and the lender's evaluation method. There are a few lenders that look solely at the monthly income and not at the credit scores when processing loan applications. You may be able to secure a loan with them if both of you have substantial incomes but a poor credit history.
If your salary account or main transaction account is with a particular bank, approach that bank first. If your spouse has a poor credit score but a healthy bank balance or relationship, inform the lender about the reasons for the poor score. Some banks may be willing to give you a loan as they have insights to your financial history.
Spouse's score around 700: Your spouse's credit score may not be great, but it is certainly not very poor either. It is likely that public sector banks may not want to lend to you, but some other lenders may be willing. Your preferred bank may reject your application or lend a smaller amount at a slightly higher interest rate.
If you are the primary applicant with a moderately good score and much higher income while your partner, the secondary applicant, has a high score, the situation can work in your favour. Lenders may give you better terms. More importantly, your spouse's score will prevent a lender from rejecting your application. Bear in mind that a loan rejection too drives credit score lower.
Spouse's score in 500-600 range: While there is no magic number that guarantees loan approval, even in joint loans lenders prefer it if both applicants have a score of 750 or more. If your partner has a slightly lower score, it will raise red flags during the loan approval process. In the worst case, your joint application may be rejected.
Lenders are naturally nervous about lending to someone who does not have a good history of responsible financial behaviour. If at all a lender is willing to sanction a loan, you might be offered fairly unattractive terms and conditions like a higher interest rate or smaller loan amount. This happens because lenders want to impose tighter restrictions and thereby safeguard their money.
If you choose to apply for a loan with a partner who has a bad score, it will not affect your individual score, but your chances of securing the loan will be significantly compromised.
Is it a better idea then to apply for a loan on your own if your spouse has a poor credit score? Here, too, the answer is not straightforward. You could choose to apply individually, without your spouse's score having a negative impact on the lender's decision. While this may result in your loan getting easily approved, it could affect your chances of qualifying for a large loan amount. While you may be credit healthy, your single income may not suffice to get you the large loan amount that you are seeking.
If one spouse has a bad score and the other has no credit history, don't even think of applying for a joint loan as no lender will touch this kind of credit combination. Most lenders treat applicants with no credit history cautiously as they find it difficult to evaluate their credit worthiness in the absence of a record of past repayment behaviour. Improve your credit score and ensure that your spouse too builds a credit profile before applying for a loan.
Credit score assumes importance in a couple's life only later in the marriage when it is time to take a substantial loan, such as an auto loan or a home loan. Use your spouse as a co-borrower only if she/he has a better credit score or a significant income that will enable you to qualify for a larger loan amount. If you are newly-married, do speak to your spouse about her/his credit score and start taking immediate steps to improve it, if required.
The writer is CEO and co-founder of CreditMantri