What Happens If Your Spouse Has Bad Credit?
Written By: David Reed
Tuesday, June 30, 2020
These three digit scores are provided by all three of the main credit repositories of Experian, Equifax and TransUnion. While all three use the very same algorithm ra>
And, businesses wont report credit payments all at the same time. But they will be similar. For instance, a credit report might show three scores of 690, 730 and 725. Of these, lenders will throw out the highest and the lowest score using the middle score for qualifying, or 725 in this example. But what if there are two people on the same application?
In that scenario, the lender pulls credit for both applicants along with their credit scores. Again, using the same example, one applicant has a qualifying score of 725. The other applicants scores read 710, 724 and 760. The middle score of these is then 724. Now we have two qualifying scores, 724 and 725. The lender will then use the lower of the two for qualifying. But next is where some problems can pop up.
Lets say the second spouse has credit scores of 550, 570 and 515. Of these three, the qualifying score is 550, too low for most programs. So, what to do? For one, the process of repairing the credit should commence. But what about the house they want to buy? Should they stop everything and wait a few months for credit to improve? Not exactly.
Theres a term in the mortgage industry referred to as a non-purchasing spouse. This means one spouse will be on the mortgage application and the other left off. Doing so removes the damaged credit from the application altogether. But the non-purchasing spouse can still be on the title showing evidence of an ownership interest in the property just not on the mortgage.
The tricky part is making sure there is enough income for the purchasing spouse to qualify for the new mortgage. If both incomes were needed in order to qualify for the home they want, thats going to be a challenge. However, if the purchasing spouse can qualify using his or her own income, theres no need to put the other spouse on the loan application. Or, perhaps putting more money down in order to lower the loan amount to the level where the purchasing spouse can now qualify.
Damaged credit in this scenario doesnt have to scuttle the purchase. As long as affordability is not an issue with the remaining spouse, the deal can still go through.
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