Does My Spouse’s Credit Affect Mine?

Credit score Q&A: “Does my spouse’s credit affect mine?”

So you’ve got excellent credit, but your spouse’s credit isn’t so hot. Does this mean your spouse’s bad credit history will affect your pristine past? Not exactly.

Just because you’re married or living together doesn’t mean your credit history is commingled, which may or may not be a good thing.

It doesn’t just blend together once you tie the knot; there is no joint credit score.

In fact, you could marry someone and keep your credit accounts separate if you so desired, though such a scenario would probably be unlikely.

Often times when two people get hitched, they share credit cards, auto loans, mortgages, and so forth.

As a result, any late payment or derogatory event (collection, charge-off) on these shared accounts would affect both parties involved.

So if the two of you applied for a new mortgage and missed a payment, you’d both see your credit score take a hit. But if only person applied for the loan, only one person would be affected.

The takeaway here is that only joint accounts affect both people’s credit scores. And not all accounts are shared through marriage. It’s completely voluntary.

Joint Credit Cards vs. Authorized Users

Nowadays, it’s difficult to actually find a so-called “joint credit card” to apply for. These are credit cards where two applicants sign up concurrently for a single card.

The card issuer considers both credit scores when determining approval and both applicants are on the hook for payments going forward. In other words, a missed payment will sink the credit scores of both applicants, not just one.

This differs from authorized user accounts, which only penalize the primary cardholder for any missteps.

However, the authorized user gets the benefit of the credit line without the consequences of missed payments or related credit score dings.

So clearly there’s quite a distinction here. The downside to authorized user accounts is that the credit history isn’t always reported or reflected in the individual’s credit score.

It’s Not All Bad

If you marry someone with poor credit, you can actually nurse their bad credit score back to health by applying for new loans together and paying them back on time.

Additionally, you can designate your spouse as an authorized user on your healthy credit accounts, which may benefit their credit score over time.

At the same time, both your credit score and your spouse’s credit score must be considered when you open new joint accounts.

For example, if the two of you apply for a mortgage, the bank or lender will likely use the lower mid-score from the three credit bureaus.

Your credit score: 765
Spouse’s credit score: 619

In this case, your mortgage approval and subsequent interest rate would be based on your spouse’s lower 619 credit score.

This explains why some borrowers exclude their spouse with bad credit when applying for a loan, assuming they can qualify on their own. Of course, that would require income and assets from the sole borrower to get the job done.

Apply for Credit Individually After You’re Married

You can continue to apply for credit in your name only after marriage and keep your accounts separate from your spouse. Sure, it’s great to have some joint accounts, but there’s no need to merge everything.

As long as there is trust, you can continue to maintain independent credit accounts and doing so may actually be beneficial if one individual slips up at some point. That way they won’t harm the other. I see this as diversification if anything goes wrong down the road.

Additionally, each spouse can sign up for lucrative credit card bonuses separately and enjoy double the points and miles! This could be helpful if you’re planning a vacation and needs lots of miles.

In conclusion, you are in full control of your own credit score, and you ultimately decide whether to get your spouse involved or not.

Just remember, old habits are hard to break, so a spouse with poor credit could eventually take you down with them.

(photo: niffty)

Capital One Pre-Qualified Credit Card Engine

Capital One has taken a novel approach to the credit card game.

Instead of simply asking consumers to apply for a credit card and hope they’re approved, the company has an engine to see if you’re already pre-qualified.

All you need to do is fill out a short form, providing basic name and address information, along with the last four digits of your social security number.

pre-qualified

The company claims the information won’t be used for anything else, and even demands you check a box that says, “I understand that this is not a credit card application.”

Additionally, the request won’t affect your credit score in any way, which is an obvious dealmaker.

*Credit card applications count as inquiries against you and can lower your credit score.

In just seconds, the engine will pump out the results.

results

They didn’t have any pre-qualified offers for me at the moment, but they said I could check out (and apply for) a few other offers, which they listed.

It’s obvious they tailored credit card offers for me based on the fact that I said I had excellent credit and wanted cash back on purchases.

And clearly this is a great way to soft-sell consumers on their credit cards, as it sucks them in without scaring them off with credit score worries and the uncertainty of getting approved.

But who really knows how many people are actually pre-qualified for Capital One’s credit cards?

All the same, it’s a great idea on Capital One’s part, and will likely result in quite a few sales for the company.

Tip: If you want a credit card, but don’t want to put your credit score at risk, give this engine a shot and look for similar pre-approved offers with your existing credit card issuers.

Chase to Issue Fewer Credit Cards Thanks to New Rules

Chase plans to issue far fewer credit cards thanks to unfavorable changes tied to the recently passed CARD Act.

The Credit Card Accountability Responsibility and Disclosure Act (CARD Act), which became law on February 22, prohibits arbitrary interest rate increases, ends double-cycle billing, and eliminates negative payment hierarchy, among other things.

At issue is the inability to raise interest rates for those deemed higher-risk, along with the elimination of negative payment hierarchy, which forced credit card payments to low APR balances before higher APR balances.

It was a great deal for the banks because it essentially trapped consumers in a never-ending and growing credit card debt cycle.

But without such gimmicks, many potential cardholders are simply too risky to take on, so Chase plans to go after more affluent consumers via its Sapphire and Slate credit cards.

In his annual letter to shareholders, Chase CEO Jamie Dimon said the company would no longer market credit cards to approximately 15% of the customers it currently offers them to.

Additionally, he said Chase has reduced very low introductory and promotional balance transfers (0% APR), which cut outstanding credit card balances by a staggering $20 billion.

The company has also reduced limits on credit lines and canceled credit cards for customers it hasn’t done business with over an extended period of time (me included).

The credit card industry on a whole reduced credit card limits from $4.7 trillion to $3.3 trillion over the past couple years, per Dimon’s letter.

Equifax Credit Score Card

So I decided to check out the “Equifax Credit Score Card™” this morning.

It’s a new service from credit bureau Equifax that provides a free quasi-credit score without the need for a credit card or trial sign-up.

Yep, all you need to do is fill in all your basic information and create an account. In return, Equifax displays a credit score range and puts you in a certain bucket.

There are five buckets, ranging from 280-559, the lowest credit score bucket, all the way up to the 760-850 bucket, which I happened to fall into. Hot dog!

Aside from the so-called credit score card revealing that I had excellent credit, it also gave me recommendations on ways I could improve, although somewhat vague.

This is similar to what you’d see on a legitimate credit report, both the free government one and the ones you have to pay for.

Equifax said I could achieve an even higher credit score if I had credit history tied to a wider array of account types, such as mortgages or auto loans (see how a Fico score is calculated)

Additionally, the report said the proportion of retail accounts, such as department store cards, compared to all my other accounts could be holding me back some (FYI: I don’t have any store cards).

Of course, these are pretty incidental items, and seeing that my credit score is somewhere between 760-850, I’m not too bothered.

If you’re above 760, you’ve got an excellent credit score (at least in my opinion), so really all I need to do is keep on keepin’ on.

Neat little service if you’re just curious where you stand credit-wise, but don’t want to provide a credit card or actually pay for anything.

Of course, it doesn’t beat a real free credit score, which is recommended if you’re actually shopping for something major like a mortgage or car loan.

Take a look at the screenshot for my Equifax Credit Score Card™ below:

credit score card

(top photo: cbowns)

Credit Card Act II

Just weeks after the new credit card rules went into effect, the Federal Reserve has proposed new rules to counter moves made by credit card issuers in reaction to the first set of rules.

Follow me? Okay good. See this is the problem when it comes to new regulations – they are quickly circumvented, and often exacerbate matters.

The Credit Card Accountability Responsibility and Disclosure Act (CARD Act), which became law on February 22, prohibits arbitrary interest rate increases and limits universal default, ends double-cycle billing, and eliminates negative payment hierarchy.

But these changes, among others, have forced credit card issuers to look for new streams of revenue, including charging inactivity fees if a credit card isn’t used during a certain period.

The new proposed rules, which would take effect in late August, would ban that practice, and bar companies from charging a customer a penalty fee that exceeds the dollar amount involved in the corresponding misstep.

In other words, if you failed to make your minimum payment of say $10, you couldn’t be charged any more than $10 for the violation.

Typical late fees are $30 or more, even if a the balance or minimum payment is well below that.

Card issuers would also be prohibited from charging customers multiple times for the same violation.

Credit card issuers who have raised interest rates since January 1, 2009 would also need to evaluate whether the circumstances involving the increase have changed, and if so, lower the rate accordingly.

Additionally, issuers would need to disclose to consumers the reasons tied to any rate increases.

Stay tuned for Credit Card Act III…

FTC Cracking Down on Free Credit Reports

Beginning next month, websites that offer so-called “free credit reports” will need to add a disclosure atop the page so consumers don’t confuse them with the no-strings-attached credit reports offered from the government.

By “free credit reports,” they mean those free trial credit reports that require you to sign up for an ongoing service; they’re only “free” if you cancel within the initial trial period, which not all consumers seem to understand.

So come April 1, you’ll see the following text on websites offering the not-so-free credit reports:

“THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV. You have the right to a free credit report from AnnualCreditReport.com or 877-322-8228, the ONLY authorized source under federal law.”

The FTC is hoping that’ll be enough to steer customers toward the official free credit report website, though I’m sure the impostors will come up with some way to circumvent the whole thing.

The Credit Card Act of 2009, which is now finally in effect, required the FTC to issue a rule pertaining to the deceptive marketing of “free credit reports” by February 22, 2010.

Between now and April 1, you’ll see a slightly different disclosure, which reads: “Free credits reports are available under Federal law at: AnnualCreditReport.com.”

Keep in mind that the free credit report offered by the government does not include a free credit score, so that’s the big different between the two.

However, the government report includes all other relevant information, such as collections and charge-offs, so you should be able to estimate where you stand on my credit score range if you connect all the dots.

Visa Only Payment Card Accepted at the Vancouver Olympics

I was watching the Winter Olympics this evening when a Visa commercial popped up, claiming it was the only payment card accepted at the Vancouver games.

This seemed a bit strange, as it would make life difficult for those holding MasterCard and American Express credit cards, not to mention out-of-towners and their random assortment of credit and debit cards.

But low and behold, it really is true, not just a marketing gimmick.

Visa has an exclusivity agreement with the Olympic Games to be the sole payment card provider accepted.

That means only Visa credit, debit, and prepaid cards or cash can be used to purchase Olympic tickets, official merchandise, and/or food and beverages in the Olympic venues.

The same goes for the official Vancouver Olympics store, which states, “In recognition of Visa’s long-standing support of the Olympic and Paralympic Games, we proudly accept only Visa cards on vancouver2010.com.”

Visa also created and manages the entire payment system infrastructure and network throughout the Olympic venues, so looks like they’re the boss.

It’s a bit surprising for Visa to shut out the other card issuers like this, but that’s competition for you.

Just unfortunate for the many visitors that will need to travel around with wads of cash, which could prove to be a boon for area pickpockets.

Oh, and the merchants that will lose out on all those would-be sales…

American Express Zync Credit Card

The “American Express Zync credit card” was released recently, aimed at younger consumers who wish to pay their balance off in full each month (whether they like it or not!).

Similar to many other American Express credit cards, it’s an installment card (also referred to as a charge card) because the full balance must be paid each month; no minimum payment option with this one kids.

That means there’s no interest or finance charges tied to the Zync card, which is clearly a plus for young consumers who are notorious for getting into credit card debt.

Of course, it diminishes the value of the credit card to some degree, as it’s really a form of convenience, and not so much a revolving credit line.

The Zync card resembles the many American Express credit cards already kicking around for older consumers, like the Gold Card, which also must be paid in full each month.

The big difference is the annual fee, which at $25, is much cheaper than the credit cards for the big boys and girls.

Choose Your Own Pack

Zync from American Express is also customizable, with four different “packs” available for an additional $20 each annually (the Eco Pack is free).

They include the Go Pack, Social Pack, Connect Pack, and Eco Pack, each offering special deals and discounts for the associated lifestyle.

Zync offers standard American Express membership rewards, purchase protection, extended warranty, return protection, excellent dispute resolution, and more.

While Zync may be a good choice for parents who want their kids to carry a credit card without the risk of being hit with finance charges, the annual fee can be a bit of a setback.

There are also a number of revolving American Express credit cards with no annual fee out there that offer the same benefits, though there is the risk of getting into more trouble.

It seems the Zync was released with the credit crisis in mind, as revolving credit cards dominated those boom years, and may be getting phased out as card issuers look for profit without taking on as much risk.

(photo: debaird)

Getting a Credit Card If You’re Under 21

In a few weeks, it will be a lot more difficult to get a credit card if you’re under the age of 21, at least, that’s the plan.

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 (Credit Card Bill of Rights) will go into effect on February 22nd, and bring with it a number of changes, which I previously wrote about.

But another issue at hand is extending credit to so-called underage consumers, specifically those under the tender age of 21.

While these individuals may consider themselves full blown adults, credit card companies will soon be required to treat them differently than the rest of the population.

Get a Co-Signer or Document Your Income

The impending legislation will require that those under 21 who apply for a credit card either get a co-signer aged 21 or over, or document the ability to repay the credit card debt.

If the under-21 applicant chooses option one, that co-signer will be on the hook for any unpaid debt; if they choose to document income, it’ll probably be rather cumbersome, and certainly not the instant approval we’ve all grown so fond of.

For example, you may be required to mail in tax returns, pay stubs, provide a CPA letter, etc.

Additionally, if under 21, a credit line increase will only be permitted on a joint account with the co-signer’s permission. Or again with income documentation.

In other words, kids can’t go increasing their card limit without their parent’s knowledge. So it’s going to be more difficult to get a credit card if you’re under 21, which in one respect, will be a good thing.

But what about those who need the credit, are generally responsible, but unable to get a co-signer or document income?

Will it lead to an increase in the use of prepaid credit cards, or an increase in personal loans, both of which have much less favorable terms than credit cards?

I hope all the implications have been considered for the sweeping changes, especially since credit cards are often a young consumer’s initial credit building tool (how to build credit).

Tip: For the record, you need to be at least 18 to apply for a credit card on your own. And if you’re aged between 18 and 21, all income listed on the credit card application generally must be your own.

If you’re over 21, you may use a spouse or partner’s income to qualify for a credit card.

Other Options If You Can’t Get a Credit Card

The easiest way to get a credit card if you’re under 21 is by becoming an authorized user. So if you have a parent or guardian or even older spouse that is 21 or older, they can make you an authorized user on one of their existing credit card accounts.

The downside is that you will only get to become a cardholder on whatever account they have opened, so you won’t get to choose a specific credit card (unless you ask them to apply for it).

However, this is a great way to build your credit until you turn 21, and will make it that much easier to get approved for subsequent credit cards once you finally turn 21.

Just note that the parent/guardian/spouse that grants you access will be liable for your debt, so this is a privilege that must be taken very seriously.

Assuming you don’t have a co-signer (such as a parent) and you don’t have enough income of your own to get a credit card, you might be able to apply for a secured credit card instead.

A secured card relies on collateral, such as an associated bank account, to ensure you have the funds to use your credit card. However, this is really only worthwhile if the credit card builds credit history. Otherwise it’s just a quasi-debit card.

Alternatively, just use a debit card until you turn 21 and then apply for a credit card. It might be the smarter move, especially if you don’t have the necessary income in case you get in over your head. Credit is a privilege and one that comes with great responsibility. So tread cautiously.

Read more: Student credit cards.

The Cost of Credit Card Use

Most of us don’t know the true cost of credit, we simply pay attention to what we’re paying in fees and finance charges.

But the cost of goods and services increases as a result of credit card use, as merchants need to pay fees to banks, credit card issuers, and other companies for the infrastructure, equipment, and convenience.

These merchant and interchange fees vary based on the type of transaction, merchant, and card issuer involved.

Visa charges an average of about 1.80% per transaction, while American Express charges around 2.50%, though smaller retailers typically pay between 3.25% – 3.75%.

This is why you’ll often find that not all small merchants accept American Express, as they don’t want to pay the extra fees (Amex also tends to side with the consumer, another drawback for merchants).

If the merchant has a special deal in place with a card issuer, perhaps based on a volume or exclusivity agreement, they’ll be able to secure lower pricing.

Take a look at these figures below, provided by TrueCostofCredit.com to get a better understanding of what credit really costs:

credit costs

credit cost

But even if you elect to pay with cash, more often than not the price already reflects the option to pay with plastic, unless you work out a deal specifically with the merchant.

The use of credit is already priced in, so it’s wise to get your hands on a cash back rewards credit card, like the American Express Blue Cash Everyday card, which offers cash rebates of up to 1.25% – 5% on all purchases.

Tip: Watch out for merchants who try to pass the “transaction fee” onto you directly.