Credit Scores & Interest Rates: Why Credit Matters to Newlyweds

May 14, 2009

Credit scores make the world go round–at least in the lending and loan world. As newlyweds you’re embarking on a new life together. This new married life usually requires the merging of existing property and the purchasing of new items. Whether you’re applying for a new credit card, buying a car or home, or buying car insurance, your credit scores and credit histories dictate whether you’ll qualify, the interest rate you pay, and the repayment terms. Poor credit history and low credit scores of your husband or wife can make building your married life together an uphill financial battle–a battle that can lead to divorce.

Qualifying for Credit

Every time you and your spouse apply for credit, your credit score, and sometimes your full credit report, are pulled. The lender uses your credit histories and credit scores as the foundation on which they build their decision. First, they assess how much of a risk you are to them and whether or not they want to extend credit to you. The higher your credit scores and the better your credit histories, the more likely you are to be approved. Your credit scores and histories also directly affect the interest rate you’re charged and the repayment terms established by the lender.

Don’t be fooled into thinking your good credit supersedes your spouse’s bad credit either. If you apply for loans together, both of your credit histories and scores are evaluated. Depending on what you’re applying for, you may not have the option to apply separately. For example, when you apply for car insurance, the insurance agency asks you to list everyone living in your residence that is of driving age. Even if your spouse never drives your car, their credit may affect the insurance premiums you pay.

Interest rates

It is a well known fact that good credit borrowers are charged lower interest rates than those with poor credit. Higher interest rates also cause your monthly payments to be higher. Especially when you’re first starting out in married life, finances may be tight. If you’re trying to buy a car or home or obtain a credit card, higher payments may prohibit you from being able to afford the purchase. Plus, nobody wants to pay more than they have to for an item. Higher interest rates mean you’re paying more for the item in the long run.

Favorable Lending Terms

It’s not only the interest rates that are affected by credit scores and histories. It’s also the terms of the loans or credit extended. It’s not a secret that good credit borrowers receive better repayment terms. For example, the longest financing period for a car is typically five years. Good credit borrowers are a lower risk to financing companies, so they can usually qualify for the longest financing terms. Bad credit borrowers not only pay a higher interest rate, but they have to repay the loan in a shorter period. For a car it may be two to three years. Higher interest rates and shorter terms equal higher monthly payments and a higher overall cost of the purchase.

Credit Scores Matter

The overall effect is that higher interest rates coupled with shorter financing terms make your payments much higher than good credit borrowers who receive lower interest rates and longer repayment terms. This can push you into a situation where you can’t afford to make the payments, which can cause your credit score to spiral down even further. Establishing good credit histories and maintaining high credit scores is imperative to painting the best financial picture for your married life–whether it’s buying a house or obtaining a credit card for emergencies.

This post on credit scores and interest rates is part of a series on credit and debt in marriage.  You can also read about debt and marriage, free credit reports, and improving your credit score


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Kristie Lorette is a personal finance writer who spent over eight years working in the real estate, mortgage and credit industries.

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