Couples Preparing For Marriage Should Study Credit Situation

Dear Liz: When my boyfriend and I get married, will our credit reports mingle? Will his debt become my debt and vice-versa? Are we better off keeping debt and credit separate? When filing taxes, is it better to keep things separate?

Answer: Let’s take that last question first, since it’s the easiest. Most couples find that filing taxes jointly makes the most sense, but you’ll want to consult a tax pro. Filing separately may protect you if your spouse is lying on a tax return, but otherwise the benefits are limited and you may lose valuable tax breaks.

Credit and debt are a little trickier. Your credit reports will not be mingled after your marriage. You’ll continue to have your own reports and scores, since there’s no such thing as a joint credit report.

Also, you typically aren’t responsible for debt incurred by the other spouse before marriage. That may be just a technicality, though, since practically speaking your finances as a couple are likely to be impacted by whatever bills you bring to the union.

If either or both of you have significant debt, you’d be smart to sit down, either on your own or with a legitimate credit counselor, and work out a repayment plan. You also should get and discuss your credit reports together so that neither of you is blindsided by unexpected debt. You’re entitled to free annual copies of your credit reports from www.annualcreditreport.com.

Dear Liz: What is the difference between scores purchased from the Web sites of three credit bureaus (Equifax, Experian and TransUnion) and those purchased from the MyFico.com Web site? I’ve heard people say that the scores sold by the credit bureaus are useless and fake.

Answer: “Useless” and “fake” would be pretty harsh assessments, but the truth is that credit scores sold to consumers by two of the bureaus – Experian and TransUnion – are not the same as the FICO scores commonly used by lenders.

Experian and TransUnion typically sell consumers VantageScores, a credit scoring system developed by the bureaus, or their own, proprietary “consumer education scores.” None of these scores is widely used by lenders, but the bureaus say they can be helpful in giving consumers an idea of where their credit stands.

Note that all three bureaus sell FICO scores to lenders. If you apply for a mortgage, for example, the lender will pull your FICO scores from all three bureaus.

But only Equifax among the bureaus sells FICO scores directly to consumers. To get your FICO scores for all three bureaus, you’ll need to purchase them at MyFico.com. The cost is about $50.

Dear Liz: While I agree with your assessment that many homeowners in danger of losing their homes today had willing lenders. I felt your “shared blame” conclusion was a bit misleading.

Both sides need to clean up their own sides of the deal, with many homeowners losing their homes to lenders who will then lose much of the money they invested in the loan. Each side will feel pain and, hopefully, learn some lessons about what not to do in the future.

If someone steps in and takes the pain away from either side, the lesson learned becomes perverse; they’ll learn to take every risk, enter every deal, as they’ll expect someone will step in to absorb their losses when things don’t work out but will know no one can swoop in to take away their gains when things do go their way.

Oh, except maybe the tax collector, who will need to get the money from somewhere each time the government steps in.

Answer: Interestingly, a similar argument about the moral hazards of government intervention was made when the Federal Deposit Insurance Corp. was created.

Critics contended that depositors wouldn’t be careful about selecting banks if FDIC insurance covered any of their losses.

The FDIC wound up restoring some needed stability to the banking system. Current efforts to help troubled homeowners are designed to do the same. These efforts will help only a fraction of the people at risk of losing their homes, but they may limit some of the spillover damage that threatens the economy.

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© 2008, No More Red Inc. Liz Pulliam Weston is author of “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” She regrets that she cannot respond personally to inquiries, but questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or use the “Contact Liz” form at her website, www.lizweston.com.

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