Don't Let A Partner Ruin Your Credit Rating

We may not want to think about it, but here's a guide to how your partner's credit rating could affect you, and what you can do to combat it.

A few moons ago while at university, I worked part-time at a high street bank. And, during my four years there, I came across all manner of sob stories and angry tales.

However, there was one I’ll never forget.

Once a young lady came into the branch practically in tears. Her partner was recently sent to prison, leaving her with the burden of his unpaid bills and threatening letters from various debtors demanding money.

After sitting with her for a while, I established that all the debts were racked up by him alone, and were all in his sole name. However, she was under the false impression that as he had lived with her, she was jointly responsible for his debts, and had come into the bank to ask for help.

I told her that although it was noble of her to try to pay them off, the reality of the situation was that she had no financial association with him, and therefore was not responsible for paying off his credit cards.

Joint bliss? Or joint confusion?

The truth is, joint finances can sometimes be more complicated than a relationship itself. The first thing to remember is that simply being married or cohabiting with someone doesn’t necessarily mean you are financially associated with them.

However, if you take out credit together, regardless of whether you live at the same address, it will have an impact. And, if one partner has trouble with repayments, it can end up bringing the other one down.

And, while for the purpose of this exercise I’m going to use the example of a romantic partner to illustrate my examples, this 'partner' could equally be a friend or a member of your family. Any joint credit agreement creates a financial association.

Credit crunching

When you sign a joint credit agreement, be it for a loan, mortgage, or current account, there will be a statement buried somewhere stating you will be 'jointly and severally liable'.

This basically means that you are equally responsible for repaying the debt. So if one borrower fails to repay, the lender can demand payment from any borrower listed in the loan or credit agreement, irrespective of whether you are paying the loan back equally.

So, if you take out a joint loan, the lender can demand all the payments from you. And, if payments are not made, your credit record will suffer just as badly as your defaulting partner.

Credit cards are slightly different, as an extra person is added as an additional cardholder, as opposed to a joint one. This distinction makes a world of difference, as it is still the main cardholder's responsibility to repay all monies owed, regardless of who racked up the debt.

For this reason, it is extremely important that anyone you add to your account is someone you trust. Credit card companies often outline the benefits of getting an additional piece of plastic – especially when it comes to reward credit cards and accelerating your points.

However, they often fail to highlight that if the other account holder fails to cough up any monies owed – it’s you, not your partner they will chase. Be warned.

Potential property problems

Property provides a whole different ball game for couples, so whether you have a joint mortgage or are simply renting, there are some important things you need to remember.

When renting it’s important to ensure that both your names are on the rental agreement, as if it is not, you have no legal right to stay in the property, even if you have been contributing to the rent.

Bear in mind that joint tenancies work like joint loans. So if one of you cannot afford to pay his or her share, the landlord can go after either party to recoup their losses. In the worst case scenario, you could even end up with a County Court Judgement against your name through no fault of your own.

You could ask your landlord to draw up separate tenancy agreements so you are only responsible for your share of the rent. However, your landlord may not agree to such a contract if you are living as a couple.

Similarly, a property can be bought as a ‘joint tenancy’ or as ‘tenants in common'. Bear in mind that joint tenancy means that if one party dies, the other is entitled to the whole property simply because they have survived you.

If you want to find out more about moving in with a partner and your rights whether married or cohabiting, read this great two part article by Donna Werbner, which explains the processes and possible pitfalls in detail.

Consolidating your finances

So, what can you do if you do fall out of romantic bliss with someone you have joint finances with? Well, as BT once said, 'it's good to talk', and you should always try to work out an agreement that suits you both. Don't be tempted to not pay any debt out of spite, as this will probably harm your credit rating too.

Whether you reach an amicable agreement or not, once you are free of the debt, if you are still worried your ex-partner could have a negative impact on you, write to the credit reference agencies (Experian, Equifax and Call Credit) to create a 'disassociation' from them. This will stop their credit history affecting yours in the future.

In addition, you can add what's known as a 'statement of correction' to explain any possible discrepancies on your credit file (for example, if you’ve recently divorced and been refused credit because you're now using your maiden name). Lenders are obliged to look at this before making decisions, although it may slow down the application process.

When it comes down to it, most of us trust our partners, and none want to think what could happen if things went wrong. However, there are some simple measures you can take that could save you a lot of possible head -- and heartache in the future.

More: How To Move In With A Partner / The Terrifying Cost Of Dying Without A Will