How These Common Financial Skeletons in Relationships Can Affect Your Credit

Whether your Halloween costume is the latest animated character or a menacing clown (please don’t), many of us use the holiday to feel free to step outside ourselves and become someone else for one night.

But, get this: For nearly half of U.S. adults, donning a mask of secrecy doesn’t pose much of a challenge.

According to a 2016 Harris Poll done on behalf of the National Endowment for Financial Education (NEFE), 42% of adults in the U.S. reported that they have purposely deceived their partners in matters of household finance. Why is this revelation so terrifying?

“When you agree to combine finances in a relationship, you’re also agreeing to a certain degree of cooperation and transparency in your money management,” Ted Beck, president and CEO of NEFE, said in a press release.

This financial game-playing covers a broad field.

Purchases: 22% of partners admitted to hiding minor purchases and 7% said they have hidden major expenditures.
Income: 6% of partners said they maintain a secret bank account, and 5% reportedly conceal their true annual earnings (which may include salary, bonuses and other employment perks).
Debt: 12% reported hiding bank statements and/or bills from a partner, while 8% said they’ve concealed outstanding debts.

Reasons Why Partners Might Lie

While nearly one-third of survey respondents didn’t list their reasons for lying about money, others (45%) reported a partner’s disapproval and embarrassment (25%) as their primary motivations. On the other hand, 32% said they believed their finances should remain private regardless of relationship status.

How Do Lies Affect Personal Credit?

Your credit scores are personal, but that doesn’t mean others can’t damage it. In the case of financial infidelity, joint account activity poses an immediate risk to the factors that determine your score.

Payment History (35%): Account statuses, late payments, judgments, liens and bankruptcies are all considered in this category. If your partner has jeopardized joint accounts, it could significantly damage your scores.

Credit Utilization (30%): This category measures installment debt (e.g., home or auto loans) and revolving credit balances against your total credit limit. Secret purchases can drive up your ratio and hurt your scores in the process.

Credit History (15%): If your partner opens new accounts tied to your name, or closes one of your older credit accounts, your credit scores could take a dip, as this could lower the age of your credit. You can review the accounts currently on your reports by viewing a free copy of your credit reports from the three main credit bureaus — Experian, Equifax and TransUnion — by visiting AnnualCreditReport.com.

Inquiries (10%): If your partner is applying for credit accounts with your name attached, you will likely see an inquiry listed on at least one of your credit reports. While this category may not be as impactful as your payment history or other category, too many inquiries in a short period of time can really cause your scores to take a hit.

Diversification (10%): Credit health relies on your ability to manage varying types of credit. That said, your partner could hinder your scores if they close joint revolving or installment accounts, especially without your knowledge.

You can see where your credit currently stands by viewing two of your credit scores for free, updated every 14 days, on Credit.com.

What Can You Do?

Financial infidelity can cause serious relationship trouble. According to Beck, it isn’t the severity of financial infidelity that destroys relationships; it’s the deception itself.

“Hiding or lying about small amounts of money can damage a relationship just as effectively as a high-dollar deceit,” he said.

While it’s rough to be lied to, especially about money in your marriage, you may not want to pack your bags just yet. In addition to confessing their lies, 54% of those surveyed resolved to repair things with their partners by taking a few practical steps that you may also be able to implement.

Communicate Openly: Honesty is a positive trait in healthy relationships, and it won’t hurt your finances, either. Consider talking to your partner about their reasons for deception and setting expectations for joint finances in the future.

Create a Budget: If you and your partner clash on money matters, it may be a good idea to create a household budget that you both agree on. A tangible list of expenses will help you remain accountable and honest as you form new habits.

Open Separate Accounts: If you can’t agree on money management, consider maintaining financial independence to limit conflict. If you prefer combined finances, it might be a good idea to create separate bank accounts for shared necessary and miscellaneous expenses. This strategy may help you both adhere to your budget and track spending.

Image: gpointstudio