When One Spouse's Credit Score Is Lower

My wife and I have kept our finances separate since we married two years ago. Now that we have applied jointly for a mortgage, I have discovered that her credit score is about 100 points lower than mine. How do lenders assess a couple’s creditworthiness when they have disparate credit scores? Will it affect our interest rate?

It could make a big difference in your rate. Lenders collect credit scores for both spouses from the three credit bureaus, then focus on the median score for each spouse. The lower of those two scores determines the rate and terms of the loan, says Brad Sherman, a loan officer with Nationwide Mortgage Services, in Rockville, Md.

If your wife’s FICO credit score falls below 620, for example, then you’ll have a tough time qualifying for a mortgage at all -- even if your score is much higher, says Sherman. To qualify for the best interest rate, both of your median scores should be 740 or higher. The lower the score, the higher the interest rate you will pay and the bigger down payment you will need.

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If you put 20% down and the lower of the two median FICO scores is 660, Fannie Mae, which guarantees mortgages, would require a one-time pricing hit of 2.5 points, says Randy Johnson, of Credit.com. That’s $7,500 on a $300,000 loan. Depending on your wife’s credit score, making a larger down payment could help you qualify for a lower rate.

If your wife’s score sends you below a key cut-off point, it may be better to try to qualify for the loan based solely on your income (joint assets can still count when applying for the loan in your own name, as long as both of you will be on the title). “If their scores are too far apart, then it doesn’t make sense to apply jointly,” says John Ulzheimer, of Credit.com.

If you decide to take out the loan together, don’t worry about a joint mortgage dragging down your credit score -- as long as you make your payments on time. “There is no crossover of bad credit history from one individual to another,” says Maxine Sweet, of credit bureau Experian. “Each person has his or her own credit report.”