Joint Loans With Your Spouse

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Being married means that you and your spouse share many things. One thing that you don’t share, however, is your credit report. Each of you maintains your own separate credit history and, if you’ve done different things over the years, you may have very different credit reports and scores. These differences can  impact you when you go to apply for a loan together.

When Better Credit Helps
If one spouse has a solid score and the other spouse has a score that could use some help, some lenders may allow the spouse with the better score to co-sign for the other spouse. For example, an automobile lender might pull your credit report and your spouse’s and make the loan based on whichever one of you has a better credit score, or make it based on a combination of your two scores. When that happens, a person with the lower score benefits because he or she is able to get the loan based on the terms his or her spouse actually qualified for.

When Better Credit Doesn’t Help
Lenders can also take the opposite approach and make a decision on a loan based on the lower score. When this happens, the spouse with the lower credit could cause the lender to decline the loan or to come back with inferior terms like a higher interest rate or a requirement for more down payment money. This penalizes you if you’re the one with the better credit score.

Beyond Credit
When two people apply for credit together, the lender can look at more than just their credit scores. For loans that are tied to incomes, like many mortgage loans, a joint application can be helpful. When a lender calculates a debt-to-income ratio, it divides the borrowers’ debts into their income. If you and your spouse both work, your joint application means that both of your incomes can be considered for repayment of the loan. This may enable you to borrow more.

Going It Alone
There are times when a couple may decide not to take out a joint loan. For example, if you and your spouse have a big difference in your credit scores, you might choose to leave the one with the lower score off the loan completely. You can still pay back the loan together, but you might get qualified for a better loan based on just the spouse with stronger credit. When you do this, the spouse who isn’t on the loan doesn’t have any legal responsibility for it, but also doesn’t get any credit on his or her credit report if the loan is paid on time every month. In the nine states with community property laws, that spouse could still end up responsible for the loan.


About the Author  
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Lander holds a Bachelor of Arts in political science from Columbia University.