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Your Credit Score, Credit Report, and Why It All Matters

With most of you having your school days behind you, you’re probably thinking you’ll never see another GPA or report card again. Not so fast. In order to help creditors, insurers, employers, and landlords evaluate your bill-paying habits, credit bureaus maintain snapshots of your credit history.

These snapshots take two forms:

  • Credit Report: A detailed report of your credit history — think of it like a report card. It includes details on your credit card accounts, loan accounts, payment history, hard credit inquiries made against you, etc. You want to ensure the detail in your credit report is accurate, because this helps determine your credit score.
  • Credit Score: A number representing your creditworthiness — think of it like a GPA. If you want to get a car loan or a mortgage, the lender will look at your credit score to determine if you qualify for a loan and what interest rate you’ll receive. The same applies for credit cards.

How does my fiancé’s credit score impact me?

“. . .40% of all respondents said they did not even know their spouse’s credit score before getting married.” – 2016 Experian survey

After all, credit scores aren’t exactly the most interesting and romantic topic on a date night. But why should you care about your fiancé’s score?

You may be thinking, “I’ve been responsible and my credit history has been pretty solid, so we should be just fine when it’s time to buy a house.”

If you’re like most people and you plan to both co-sign the mortgage, each of your credit scores will be analyzed by the lender. But how do most lenders determine which credit score to use? Each credit bureau can produce a different score and there can be significant differences in your score and your fiancé’s score.

What you may not realize is that most lenders use the middle/lower then lowest method. Here’s a simple example to illustrate the process:

Co-Sign Example

When two scores are received for an individual, the lender will select the lowest of the two. When three scores are received, the lender will select the middle score.

Assume your fiancé and you receive the below credit scores from the credit bureaus. Under the middle/lower method, your fiancé’s selected score is 600, while your selected score is 750.

If you both decide to co-sign, the lender will then select the lowest of your score and your fiancé’s score. In this case, they would use a score of 600 to determine the interest rate on your mortgage.

Ignoring one person’s score can cost you and your fiancé thousands of dollars over the life of the loan. If you both plan to co-sign one day, it is important to understand each of your scores early on, so that you can take action now and have time to improve a score.

Questions

Do you know your fiancé’s credit score? If so, at what point in your relationship did you first discuss this?  Comment below and let us know!

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