Common Couples’ Credit Woes
When couples apply for a mortgage, they’re usually only focused on one new address. Barbara and Gregg Cochran were fixed on several. While applying for a mortgage, the Cochrans learned that their credit reports contained several unpleasant surprises—addresses of homes they never lived in and excess charges from authorized users.
“We had no idea,” says Barbara, an administrative assistant based in Seymour, Connecticut. “We thought we were on track [for a mortgage], but we were basically laughed out of the lender’s office. My credit score was only 458.”
The Cochrans aren’t the only couple to receive a fiscal slap in the face. Here’s what you can learn from couples who got credit shocked.
Bridge the Gap Together
Working together and seeking knowledge are the only reasons the Cochrans pulled out of their financial slump. While Gregg’s score increased remarkably fast, Barbara’s score had other dings and took longer to improve.
“One person having a higher credit score than the other is a common problem among couples,” says Jason Skinrood, a senior loan officer with Flagship Financial Group mortgage lending and owner of the credit card comparison site PlasticRewards.com. “They can try to get the loan with only one borrower or they can spend some time paying down debt and lowering their utilization ratio.”
The most common reason for credit imbalance, says Skinrood, is one partner having a debt utilization ratio over 25 percent. If debt is an issue, Skinrood advises couples to raise their credit by dividing their debt among several cards instead of packing it all on one account.
Share Your Info, Rules Are Changing
Couples without credit dings can get a shock at a lender’s table, too. When Angela and Sam Shiromani applied for a mortgage last year, they discovered two delinquent accounts—one that had already been paid off and one for which they hadn’t even received their first bill.
“Macy’s was sending statements to an address we had not lived at for many years and the other account was [on Sam’s report] for items we bought under a no-payment, no-interest-for-one-year plan,” says Angela, president of the public relations firm Sinickas Communications, Inc., in Laguna Woods, California.
Despite the fact that the mistakes on Sam’s report haven’t been removed, the Shiromanis still got a loan based on Angela’s score. Few couples will be so lucky, says Bill Sherwood, vice president of eCredit Advisor, the Austin, Texas-based credit repair service that helped the Cochrans get back on their feet.
“The FHA loan-approval model is getting more stringent than it’s been in the past six months,” says Sherwood. “Instead of being 31 percent, its debt-to income-ratio is now going to be 27 percent. For a lot of borrowers, that 3 percent [difference] is huge.”
Don’t Be the Weakest Link
Even if both partners qualify for a loan, one partner can still inflict damage on the mortgage.
“If one borrower’s score is in the 720s and the other has a score in the low 600s, the lender is going to take the score that’s in the 600s,” says Skinrood. “That’s the score that will determine your interest rate.”
If one partner’s score is hiking the interest rate up, Juskoo says couples can start leveling the playing field by having the borrower with high credit add the lower-scoring partner to his or her accounts.
“When one partner adds another as an authorized user, that’s using the good credit to both partners’ advantage,” he explains.
The best way to avoid credit shock is to come prepared.
“A lot of people walk in with their hands in their pockets, wondering if it’s possible to get a loan based on what they’ve heard on the street,” says Sherwood. “If you’re serious about a mortgage, you need to check your credit report and bring in three months of check stubs, W-2s, or 1099s and three months of bills.”
By organizing their paperwork ahead of time, couples can avoid the sinking sensation that comes with losing out on a loan.
“I wish we had known all of this before we started the process,” says Angela. “It’s a little late when you walk in the lender’s door.”