If you’ve been dating your partner for a while now, you probably feel like you know them fairly well. But how well do you know their finances, beyond whether they’re a compulsive spender or a serial saver? While chatting about money with your partner isn’t going to be the most riveting conversation, it could be the most important one to have especially if you’re thinking of joining finances in the future.
Knowing your partner's credit score is a good place to start as this will help determine your chance of being approved for a loan together (it will also reveal a lot about your partner’s financial past). However, research from finder.com.au, which surveyed 2,005 people, found that over 80% of us don’t know what our own credit score is, let alone our partner’s – which is why it’s important to keep the lines of communication open.
Asking your partner about their score, along with their financial habits (including the good and the not so good), will pay off in the long run. Here's why.
To get a loan, you need a healthy credit score
If you’ve ever held a credit account before, chances are you’ll have a number attached to your name that determines your risk profile when borrowing – your credit score. This is calculated based on the information in your credit report and will usually range between zero and 1,000 or zero and 1,200, depending on which bureau you use to calculate your credit score. The higher this number is, the more confident a lender will be about your ability to repay a loan and the more likely you are to be approved (as long as you satisfy other eligibility requirements).
Your score is impacted by your previous loans and how many credit applications you’ve made. It will also factor in your personal details such as your age, employment history, address, and any defaults you’ve made on loans. A lot of things are taken into consideration so keep an eye on your score (and your partner’s) to ensure mistakes aren’t made!
Your credit score can affect your other half (and vice-versa)
While a credit score is attached to an individual and not a couple, your score can affect your partner if you decide to apply for a loan together. For example, if you get to the stage of your relationship where you want to buy a family home, your chances of being approved for the home loan will depend on your joint creditworthiness. If just one of you have a poor credit score (at around 500-600, for example), this could stop you both from being approved for the loan.
There are many reasons why you or your partner may have a bad credit score. If you often forget to repay your credit card bill, or frequently increase your credit card limit, your credit score won’t be looking too good. Your score will take another hit if you don’t pay your bills on time, so if you’ve recently moved in with your partner, make sure your bills are being sent to your new address so that you don’t fall behind in payments. Making multiple credit enquiries or not paying your home or car loan repayments on time will also lower your score.
Don't lose hope - credit scores can be improved
If checking your credit score has revealed your partner’s ugly financial past, don’t panic – you can take steps to improve it. Although it might delay some of your financial goals together, the sooner you find out about it, the sooner you can start improving it – and the faster you can get loan approval for your dream home!
To bring this number from low to high, have a think about how much debt you have and try to consolidate this into one so that you have fewer repayments and fewer fees to pay. Defaulting on payments will hurt your credit score, so if you know that you frequently forget to pay your bills, try to set up auto-payments through your Internet banking so you don’t forget.
Be proactive about improving your financial health
- Consider all your options: If you have a bad credit score but a family member is willing to go guarantor for your home loan, you may still get a competitive interest rate.
- Postpone your property purchase: If your credit score needs some work, you might need to be a little more patient about home ownership. Improving your credit score in the interim by clearing your debts means you’ll have a better chance of being approved for a mortgage in the future.
- Get some professional advice: Chatting to your partner about your joint finances is important, but getting some advice from a financial planner or mortgage expert will clarify everything a lot more.
Don’t go running for the hills if you discover your partner’s credit score isn’t what you hoped it would be. Credit scores can be improved over time, which can boost your chance of accessing finance. As long as you’re honest and have the conversation early in your relationship, you can still realise your joint financial goals.