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Spouse’s Bad Credit Killing Hopes of a Mortgage? Save Your Home and Marriage!


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You probably didn’t think to run a credit check on your spouse before you got married. After all, love reigns supreme, right?

But when it comes time to buy a home and your lender reveals serious issues with your spouse’s credit, things can get awkward fast. Whether your spouse went on a few credit card–fueled spending sprees in grad school, has an old account collecting dust, or has a financial history that’s much more troublesome—you’re going to have to face reality. Because if you’re looking to get a mortgage, you could get tarred by your spouse’s fiscal brush.

Don’t despair, or head for the marital exit—credit can be repaired. It will take time to get things back on track, but it can be done systematically. So roll up your sleeves, and learn how to fix common credit problems together!

1. Look for reporting errors

You’ll first want to make sure that your spouse’s credit isn’t being dinged unfairly. It’s important to check your credit report annually and look for errors. If you find problems, call the credit bureaus (and your creditors) to get issues fixed ASAP, says John Shunnarah, CEO of First Commonwealth Mortgage in Louisville, KY.

“Vendors can provide a letter stating there was a mistake and get the error off your report immediately,” he says. “That helps boost your credit tremendously.”

2. Lower the credit utilization rate

The more available credit you have, the better it looks on your credit report. Even if you have just a few credit cards and low spending limits, lenders do a double take if you’re using more than 30% of your available credit. This is known in the industry as having a high credit utilization rate.

Making payments on time is one of the easiest ways to keep your credit score in top shape. But it won’t help much if you’re teetering on the edge of your available credit limit, Shunnarah says.

Instead of putting money toward high-interest credit cards, pay all of your outstanding card balances down to 30% or less of your maximum credit limit. Why? Your score will increase much faster, he says.

“Most lenders can do a rapid rescore on your credit report, which takes about a week,” Shunnarah says, noting that lenders look favorably on mortgage applicants with low credit utilization rates. “Also, always pay more than the minimum amount on all of your revolving accounts; it gets you there faster.”

3. Encourage your spouse to establish a credit history

Does your spouse prefer to pay for things with cash or check? Sometimes a lack of credit can be just as problematic as a mountain of debt. Without any open lines of credit, a lender has no idea how risky you are as a borrower or if you can keep up with monthly payments for the long haul, says Dave Marcus, a senior loan officer with AmeriFirst Financial in Denver.

He suggests opening a new credit card and putting a few dinners, gas, and groceries on it each month, but pay off the charges strategically to build your score quickly.

“I coach my clients to get the largest credit line they can, then make a payment before the billing cycle ends and pay off the rest of the balance after the cycle ends,” Marcus says. “For example, if you have a card with a $1,000 limit and you have $500 on it, pay $400 the day before your billing cycle ends so your actual statement says you owe $100 instead of $500.

“Doing this requires more diligence with payments on your end, but it lowers your credit utilization rate,” he adds. “And that builds your score much faster.”

4. Be strategic when paying off your debts

One of the most common issues that pop up on credit reports are unpaid debts that have been sold to collection agencies, especially medical bills, Marcus says.

Unpaid debts, or “negative accounts,” stay on your credit report for seven years from the date your account first went delinquent, according to Experian. During that time—assuming the debt goes unpaid—your credit will take a substantial hit. You could see your credit score dip by as much as 100 points, and you’ll encounter trouble any time you try to take out a loan or a line of credit. After seven years, though, the original debt—as well as the collection agency account—will be removed from your credit report.

Now, let’s say you’re trying to get a mortgage. You might think that paying off your unpaid debts will be a quick fix to your credit score and improve your chances at a home loan. But that’s not always the case, Marcus says. It can take months for your credit report to reflect the fact that those debts were paid. And, if you’re closing in on the end of the seven-year window before your debt rolls off, it might make more sense to wait.

“Paying an old collection that’s been sitting dormant is like waking up a sleeping lion,” Marcus says. “It’s almost better to wait and pay that collection off after you’ve purchased your home or after you’ve taken out your mortgage.”

To be clear: We’re not saying you should blow off your debts (and your credit will certainly suffer during those seven years they go unpaid). But talk with your lender about the best approach to deal with those outstanding charges while trying to get a mortgage. And know that resolving your other credit issues will improve your financial status faster than dumping money into dormant collection accounts.

5. Leave one spouse off the mortgage

If you have fantastic credit and a solid income that will afford the house you both want, you can apply solo for a mortgage. Heck, you might even get a better mortgage rate and pay fewer fees without your spouse’s poor credit to weigh things down.

But there are some drawbacks. If you really need both incomes to afford a home, you can’t simply ignore your spouse’s lousy FICO score. And taking on the mortgage by yourself could create ownership issues down the road, depending on your state’s property laws. If your spouse’s name isn’t on the property deed or title, you might need to use a quit claim deedto transfer ownership should something happen to you, or risk foreclosure.

If you can’t apply solo without wrecking your budget, try writing a letter of explanation to your lender. Along with supporting documentation, this can be used to address credit blemishes, how they happened, and what you’re doing to fix them.

6. Be patient and work at it

There’s no magic wand that will make credit problems vanish right away. It takes diligence, hard work, and time.

That said, you can totally make a mortgage happen—eventually.

“If my clients have to wait to buy a home, I explain why they don’t qualify and give them the tools they need to get back on track,” Shunnarah says. “They might even need to sit down with a credit counselor to sort things out. But, really, it just takes time for some of these issues to be ironed out.”

For more smart financial news and advice, head over to MarketWatch.


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