How marriage can influence your credit health?


Arun Ramamurthy and Gaurav Wadhwani

Even if your husband/wife has an incredible credit score, it shall in no way make your score reach greater heights

Marriage has been long considered as a ceremonious institution bringing together two like-minded individuals who want to spend the rest of their lives together. However, in today’s fast changing lifestyle, marriage has also turned out to be a financial institution. It may sound a little weird, but it is very much advisable by financial pundits that before you commit yourself to matrimony, ask your partner about his or her financial position so that you have a clear picture ahead of you. This is to ensure that both of you are credit healthy and get your life rolling together.

With the Indian economy grabbing a center stage on the global front, things like a good credit score and such financial terminologies are garnering importance in our day to day lives. Most lenders today rely on credit scores and credit reports while reviewing loan applications and those with higher scores are given preference. A credit score is basically a thorough report that reflects how much credit worthy an individual is. In India, there are credit bureaus like CIBIL, Experian and Equifax who collate the data from creditors, lenders and utilities, debt collection agencies that an individual has had a relationship or experience with. A credit score starts from 300 to 900 points and anywhere from 700 to 900 points is considered as decent to excellent.

According to the data released by CIBIL recently, over 90% of new credit is sanctioned to people with scores of 700 and above.

How is credit score calculated?
  • According to CIBIL, the credit score is calculated after taking into account defaults made by the individual, amount of credit being used, number of loan applications, loan mix and so on. Default on repayment is one of the factors that determine your credit score.
  • “Borrowers tend to assume that having a clean repayment history alone can ensure a good credit score. However, there are several other factors that influence the score,” Rajiv Raj, Director, CreditVidya.com, says.  
  • Of course, repayment history gets the maximum weightage (35%) while computing the scores.
  • “The second factor is credit utilisation which accounts for 30% of the score. That is, how much of the available credit you have used. The third factor is the vintage of credit – for how long you have been using credit — which gets 15% weightage. The fourth factor is the account mix that is the composition of the secured and unsecured loans in your credit profile.
“A good mix of credit is important to have a robust score,” he adds. Please note that the weightage could vary among credit information companies.

Now coming to marriage, the question looms large in the horizon as to whether or not the CIBIL credit report will affect your individual score or not. Though it is taken for granted that after marriage the couple shares everything, it might not necessarily include the credit report. Both of you will continue to have your own CIBIL report indicating your credit history without any influence of your partner’s score. Even if your husband or wife has an incredible CIBIL score, it shall in no way make your score reach greater heights. Same is the case with a bad credit score.

However, if you both want to apply for a home loan, car loan or even a credit card, the bank will scrutinise both your credit scores. If both the credit reports are satisfactory, chances are very high that the loan or card will get easily approved. Moreover, you might also be lucky to pay a lesser rate of interest. On the other hand, if both the credit scores are on the lower side of the score card, then chances are slim that your loan will be approved, let alone lower rate of interest.

Keep in mind that in case of holding a joint account, both husband and wife are responsible for monthly loan repayments as well as credit cards payments. In case both the scores are lopsided, then the couple will have to chalk out a plan as to whether they want to do it jointly or get rid of this plan entirely. If the couple decide to stick to the plan, then it will increase the score of one of the partners—which will help in the long run to negotiate interest rates while applying for the loan.

The bottom line is to see each other through during good times and worse as you had promised while taking your marriage vows. And this essentially includes finances—because money matters!

The writers are the founders of Credit Sudhaar, an entity that helps people improve their credit rating.

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