It’s not uncommon to check on your credit report and find something there is seemingly inaccurate or out of date. Things like wrong entries or outstanding balances already paid are easily disputed and subsequently amended. However, one factor that is not as easy to dispute is that of financial links.
What are these and how can it affect your credit score? More so, what can you do to mitigate the worst effects if you do find yourself linked to someone else? To answer these questions, you need to understand the basics of financial association.
Financial associations occur when agencies perceive you to have a financial relationship with someone else. That person could be anyone from your friend to a family member and even relative.
So how do you become financially linked with someone else? You might be surprised at how easy that could happen. As a matter of fact, you can get financially linked with someone when you:
What should you look for in your credit report to see if you’re linked to someone. Most of the time, your financial links will be entered into your payment history via the transactions you make with another account marked as a ‘financial associate”. With some agencies, your financial associations would be placed in a different category on the report so you can easily tell which transactions were made by you or jointly with you.
The short answer is no. Your credit score is going to be made up by actions solely made by you. This includes payments you’ve made, payments you’ve missed, credits you’ve used, credit’s you have yet to use, credit cards you have opened and closed, and hard searches done to your credit information. After all, it would be a bit unfair if you get poor marks for someone else’s action especially those that you’ve never sanctioned or agreed to.
However, financial links tend to influence how creditors would look at you if you apply credit from them. Being linked to someone with a poor credit history might cause creditors to hesitate approving your credit application even if you have a good payment history.
If they approve your credit and that person has direct access to your credit, what’s stopping them from using that credit and potentially leaving you with a large financial obligation? Simply put, they might think that the way that that associate handles their finances would have a direct effect on the way you manage yours.
Think of it as something similar to living with an out-of-control alcoholic. You might not be a drinker yourself but that won’t stop the neighbours from judging you prematurely.
On the flip side, being financially linked to persons with good credit scores tend to positively influence creditors when treating your applications. This is quite true if you’ve barely just begun with your credit history. However, some lenders would just disregard these associations so as long as the associates don’t have bad credit scores.
Although marriage does create a civil and legal union, this does not automatically create a financial link. In fact, you can be married to a person for years, even taking on their own surnames, and you’d still not have them listed on your credit report as a financial associate.
Also, you don’t automatically become responsible for any debt incurred by your partner before, during, or after the marriage. This is even despite the fact that you have some prenuptial agreement of sorts that makes all of your properties conjugal in nature.
The only instance that you and your spouse get fully financially linked is if one becomes a guarantor for another, a joint bank account is opened between them, or when both jointly apply for credit. Either way, you and your spouse will get separate credit reports that are merely linked to each other by way of mailing address.
Also, if you do get divorced with that person, things like paying for child support does not count as an entry to your payment history or a separate shared finance entry. Whether this helps or hurts your credit score is truly up to you.
Aside from marriage, there are also other instances that don’t instantly get you linked with someone else. These include:
Even though there are multiple registered and authorised users for one card, there is still just one cardholder. Credit reporting agencies only recognise the primary cardholder as the one responsible for all payments in that card. This means that if the cardholder misses out on a payment and you are one of the card’s registered authorised users, the missing payment won’t affect your credit score in any way.
Unless the one issuing the bill really knows that you are in civil union with any other name listed on the bill, the credit agency won’t mark the payment of that bill as a financial link to someone else. Of course, the flip side to this is if the bill directly is addressed to you and the other person jointly such as “Mr. and Mrs.” or some other variation.
Even if you are legally linked to someone else financially, it doesn’t mean that you have to live with that association forever. What is important is that you contact your credit reporting agency and inform them that you don’t want that financial association to be reflected on the next report.
Also, some creditors do allow you to have your application assessed only by your credit information, bar any financial links that you might have. This is what is called as opting out and this prevents your associates’ credit information from being used against you.
If you’ve recently gotten married or about to be married, it would be a good idea to include your maiden name when applying for new credit. This allows a link of sorts to appear between your two names which would allow both to appear in your credit report from that point onwards. This would also prompt any lender to take into consideration both of your names when making an examination on your credit information. You can make this even more effective if you register again on the electoral roll as soon as your legal status is changed.
On the flip side, if you are going through a divorce, you have to understand that your financial association with your soon-to-be-ex-spouse will remain unless you find a way to break it. The best way to do this is to close the joint account you had opened with that person before the divorce gets finalised.
The only way that your association won’t be broken by the divorce is if you had a joint mortgage. Unless the mortgage has been fully paid, your financial link with your spouse will remain.
So, does sharing the same apartment with other credit holders make you financially linked with them? The answer is no. Creditors couldn’t care less how many other people share a pad with you. Any financial activity you do without the involvement of these people and what these people do in return with your involvement won’t affect your standing among creditors and reporting agencies.
However, your roommates and flatmates would get financially linked with you if you ever perform any of the activities as mentioned way above. Also, that relation will still exist even if that person is no longer living with you until any debt both of you had incurred in the aforementioned transactions were paid.
In short, financial links only start to exist when you perform a financial transaction with another person or in behalf of them. As soon as it exists, that financial link will be recorded into your credit history and could stay there for as long as six years or until any outstanding balance arising from that association is paid for, whichever comes first.
What can this imply for you as the credit holder? You must make sure that whoever you are financially linked with is also as diligent or even more diligent in checking their credit performance. This way, you can be sure that both of you won’t negatively affect the other before you make any financial transaction with a creditor. And if you do get negatively affected by that association, there is always the option to have it removed from your history.
Are you financially linked with someone else? Has this changed the way creditors treat you and your associate? The comments section below is open for your inputs and opinions.