Expert: Regan Shinski - 4/15/2009

Question
QUESTION: When I become a freshman in college several years ago my father thought it would be a good idea to open credit cards in my name to help build my credit. That's until the credit cards started being used, and they were being opened by the dozen. Five years later I found out what this how done to my credit, when I had to run a report for my new job. I was shocked and very upset for what my father had done. Our relationship now is very strained because of this, and most of all because I will be soon getting married to someone who has GREAT credit. For the past 2 years I have been speaking with my father frequently about paying off this debt so that I can eventually buy a home, have a credit card, etc... Since getting engaged my fiance and I have put even more pressure on him to clear my name, but with the turbulent economy it is still far away to being 100learned. My fiance and I have been very open about our finances and the word prenup has come up many times. I feel like this is a huge slap in the face, but I do understand where he is coming from. I don't want to ruin the great credit he has worked so hard in getting but having a prenup scares me. I worry about our future with buying a home in a few years, and if this is something I'll ever be able to do. And as for a credit card, I have one with a limit of $1800. It's very upsetting, and I wish there was something more that I could do.

ANSWER: Hello.  I am sorry you are facing such a situation.  Based on the information you provided, I can only provide general thoughts or philosophies.  

First, regarding a prenup, that is clearly a personal decision and really does not affect credit.  It has more to due with assets and division of assets should a divorce occur.  The reality is in some cases you "inherit" the credit of your spouse and in most cases you do not.  A mortgage being the most obvious case where the spouse's credit can be an issue.  However, it also CAN be overcome with solid credit, income, job stability and assets from the other person in the marriage.  Our fist house was bought when I had good (not great) credit and my wife's was awful.  So it is not a given that you will be a stumbling stone to you guys buying a home as a couple.  I would suggest contacting a mortgage person or banker, explain your situation, and ask what options are available to you or where you would need to be to get a mortgage down the line.  Do NOT have them pull either of your credit reports until you are ready to buy as pulling credit can lower your score.

In the interim he will still have his separated credit reports.  I would obviously recommend you guys try and protect it.  This means never linking him to your derogatory accounts.  He will still be able to apply and get credit in his name and in many cases you can be added as an authorized user after the account is open.

Specifically regarding your credit, I cannot answer without additional information.  Are you saying your father fraudulently charged on accounts already in your name?  If so, you can dispute these charges as fraudulent with the credit card companies.  Be advised this could create a legal issue for your father if he committed these crimes.  Same thing if he opened the accounts without your knowledge.

Is there a concern of him accessing or trying to manipulate or open credit in your name still today?  If so, a fraud alert can be placed on your credit reports.  This creates a burden for you to open new accounts, so don't enter this area unless you fear more fraudulent activity.  This decision becomes more likely as your credit improves as your improved credit will open the door to more accounts.

Are these accounts that are still open?  If so, they may be actually helping your score.  It depends on the history, how long ago any derogatory action happened and what balance is to available credit.  If there is GOOD activity on the account, it may be wiser to go through traditional credit repair techniques to clean up the bad and keep the good on each account.

If the accounts are with a third party collection agency, this is also a complicated issue.  There are several cases - more often than not - where (from a credit standpoint) it makes more sense NOT to pay them.

Are these accounts old?  If there has been no new activity they will fall off in roughly seven years anyway, so it may be better to do nothing in that case.

Are the amounts incredibly overwhelming or are you in massive danger of being sued?  Have judgments been filed against you?  These are potential reasons to explore a bankruptcy filing.  In general, I DO NOT RECOMMEND THIS!!!  But in some cases, it is the only option.  I just cannot tell based on your original posting.

I'm sorry I cannot give you a specific recommended course of action.  It just depends so greatly on many things.  Feel free to give me the details on your accounts and I will answer them the best I can.

It is also important and never too soon for you to establish POSITIVE tradelines.  Do you know what your scores are?  Can you get a subprime or department store card?  If not, look at a secured credit card.  Use it minimally, pay it each month and by six months you should see some noticeable improvement in your score.  Do NOT apply for everything under the sun.  If you cannot get a subprime card, then look at the secured cards right away.  

Finally, keep a positive outlook.  This can turn around!  In months or a couple years - not decades!  A combination of getting positive tradelines to report and credit repair where needed can turn it around faster than you think.

---------- FOLLOW-UP ----------

QUESTION: First off, thank you for your feedback. It has been very comforting to know that the world is not coming to an end and I can move forward from this. I appreciate you taking the time to discuss this with me.

When my fiancé first mentioned a prenup I thought he was only watching out for himself. The more I have thought about it I  understand how important it is to have one of us in good standing for when we buy a house, have a family, etc. I think that he 100believes that he will "inherit" my bad credit and worsen his causing us future financial problems. It sounds like this isn't necessarily the case. He has made it clear that we shouldn't combine our finances until I am in somewhat good standing, but is that really the way to go? Would it be a smart move to speak with a mortgage person or banker now, before we get married to determine first if we need a prenup and then how much things will be affected if join finances and apply for a mortgage?

As for my credit, many old, derogatory accounts have been closed, while others are still open in fairly good standing. The real issue is the student loans, which are just sitting there. I only have one thing in collections, and it has been there for 6 or 7 years. We have tried working with the agency but it is impossible, so we have let it be.

For the past several years I have done everything possible to keep my credit in GREAT standing going forward. I bought a car 3 years ago, always making payments on time, and sometimes making larger payments each month to pay off faster. I have telephone/cable account that is always paid on time, as well as a checking card and one credit card that is joint with my mother (the only way I could get a credit card). I believe these are positive moves but the past debt is continually lingering. I have tried applying for a department credit card, and other credit cards in the past few years and have always been declined. I don't think I have ever heard of a secured card, so I will have to take a look at that.

The whole situation of my father is that his intention of opening credit cards in my name would help build my credit. Some were in both our names, and rather than just letting the cards sit, they would be used and balances would be forgotten. Over time cards accumulated, balances tripled... and here we are today. I was aware at the beginning of what he was trying to do, but I didn't know how bad it was until a few years ago when I applying for a government position.  

Answer
Hi Tracy:

The first thing both of you should do is realize what will and will NOT change once you become married.  Again, I will only answer to the credit SCORE issues.  In order to do that, you must understand what gets reported.  It only gets reported on an individual's credit report if that person is financially and/or contractually obligated to the debt, an authorized user on the account, or a judgment, lien, or garnishment has been entered through a court proceeding.  This means the day you are married your credit report WILL NOT change to show his good accounts and vice versa!  Now going forward, that can change.  For example you can be sued for the student loans or have a tax lien filed against you that your husband could be liable for.  This is almost exclusively for government type accounts and even in that case I believe only if you file a joint return.  It may even only be for activity/loans taken out AFTER the marriage.

If you open a JOINT account (Meaning both names), ONLY that account will show up on both credit reports.

If one of you is added as an AUTHORIZED USER on the other's account, that will then show up (with all it's history) on both reports.  This means your bad account will NOT be added to his reports unless you make him an authorized user or joint account holder.

Usually mortgages underlying real estate will have to be in both names.  This depends on the state.

Bank accounts (checking/savings/cd's, etc) are NOT reported.  The idea that opening a joint checking account will negatively affect his credit is FALSE.  Now if you open a joint CREDIT account, that will show up on both (see above), but if you make payments on time it will also HELP BOTH of you.

Bank DEBIT cards are NOT reported.  Bank CREDIT CARDS are.

I really think you and/or your fiancee seem to be confusing what a prenuptial agreement is.  I don't see how it has ANYTHING to do with credit when you get married.  It sets forth the terms of property and assets should a divorce occur.  Perhaps he is thinking about making sure he has assets (money) to PROTECT his credit AFTER a divorce?  Meaning making sure he can pay his bills should a divorce occur?  This is way different than saying a prenup PROTECTS his credit when you get married.  This is treading on a personal decision so I only mention this trying clarify exactly what he wants it for or what he is afraid of.

If you want to buy a house, you need to speak with a mortgage broker or banker.  They are going to want to pull your credit.  Try to get answers by giving them honest and complete details of your situation WITHOUT having them pull credit.  It hurts your score and the credit pull is usually only good for thirty days.  Tell them you just want a "general idea" of what is available.  Knowing your scores in advance would help.

Regarding improving your credit, it sounds like you need to start some type of credit repair.  It's a slow but definitive process that does work!  There are many different philosophies and I have my own thoughts when I do credit repair for others but you certainly want to dispute anything that is not accurate and anything seven years or older since the date of last activity.  This is why it is often not wise (for credit scoring only) to pay a collection or charged off account that is near seven years old.  It can potentially restart the clock and the derogatory information will stay another seven years!

Regarding your accounts with your father, I would get my name off of them yesterday!  This means closing them if at all possible, paying them off (being aware of caution 7 year thing mentioned above), or whatever else you need to do.  I would not pay them until the account is CLOSED, so you do not risk being liable for his debts if he uses them.

Finally, back to your fiancee and your issue, I do think it is important to protect his credit early in your marriage since you do not have good credit right now.  This primarily means not making him an authorized user on your accounts and continue paying all joint and personal accounts in his name on time.  (Again this really has nothing to do with a prenup in my opinion.)  However, it is equally important that he partner with you to IMPROVE your credit.  This means getting positive tradelines on YOUR report.  The two of you will be much stronger down the line when BOTH of you have EXCELLENT credit.  IMHO, he needs to realize that as a married couple, this is now partially his responsibility to.  A joint checking account will not report.  Joint credit accounts that are paid on time help BOTH of you.

Good Luck!

p.s.  Offered as opinions only and should not be taken as legal advise.  Consult an attorney, financial/tax expert, or other paid professional for consultation if needed.