By Laura Susstance | Friday, June 11, 2014
Your Credit Score
If you’re not familiar with the term, ‘credit score,’ it’s probably about time that you were, as this score essentially determines how successful you are in applying for a loan or credit, and what level of interest rates you’ll receive. A credit score is calculated by a lender of products or services and is based on your credit report and then used to determine if you will be awarded the product or service. Therefore, it’s important to understand this process, and whether or not your partner’s credit score will affect your application for a product or service.
Your credit report is managed by a credit reference agency. That report contains all financial data and information that outlines how well you can manage your finances and debt. For example, it will record every financial transaction, any CCJs or bankruptcies, any loans or overdrafts etc. The lender will access this information and cross reference it against a set of data that they use, which prioritizes how important different criteria are. Then the agency ultimately calculates a ‘credit score,’ which determines whether or not the user will be granted the service or product, and at what percentage interest rate, (the better the credit score, the more competitive , i.e. lower, the interest rate will be).
Any product or service that you request will be awarded to you based on your credit score. This includes bank loans, payday loans, overdrafts, mobile phone contracts, utility bills, home loans, car loans etc. Furthermore, each of these come with a percentage rate of APR which can be adjusted by the lender, depending on how solid your credit score is. Therefore it is in your best interest to have a good credit score, as this will mean that you will pay less—in many cases, significantly less,—in the long run.
What about Joint Applications?
The question, “Can my partner’s credit score ruin an application for loan or credit?” is an important one. The upshot is, as long as your finances are separate, your credit scores will not have an effect on your partners or spouse, even if you’re married. However, if you choose to combine your finances i.e. via a joint bank account, both of your credit scores will be taken into consideration. For example if you have a good credit rating, but your partner has a poor credit rating and you apply for a loan, the lender will look at both of your credit scores and perhaps decline the loan. If they do decide to lend you the money, it’s likely that they will look at your joint application as a riskier one, and lend to you at a higher rate of APR. This means the loan will be more expensive in the long run.
In summary, as long as you keep your finances separate from your spouse or partner’s, your individual credit scores will not affect each other’s, therefore if you apply for a loan or credit, the lender will only look at your individual credit report. However if you choose to combine your finances i.e. through a joint bank account, be mindful of your partner’s credit score, as this will result in both credit reports being accessed and analyzed.
Laura Susstance is an experienced content writer from the United Kingdom. When not writing on a freelance basis or contributing guest blog posts, she regularly contributes to her own blog.