Whose credit score is used on a joint mortgage and how is it calculated?

When two people decide to buy a house together, they have a lot to consider. You and your partner have likely talked about how you'll combine your finances, share expenses and save for major purchases.

Buying a home is one of the biggest decisions people will make. You've probably kept careful track of your credit score and made sure not to do anything that could lower it.

But what about your partner's credit score? If you and your partner decide on a joint mortgage, both of your credit scores will come into play. This guide will review how credit scores work, how they affect mortgage applications, how to calculate credit score on a joint mortgage and what to do if your partner has bad credit.

What is a credit score?

The term "credit score" usually refers to a FICO score. FICO stands for the Fair Isaac Corporation, the company that developed the most commonly used credit scoring system. With FICO, everyone is assigned a score ranging from 300 to 850. The higher the number, the better the credit.

Your credit score takes several things into account including current debt, payment history, new credit and types of credit.

Your credit score is important because it's one of the key factors lenders look at when deciding whether to offer you a loan.

How do lenders use credit scores?

Lenders use credit scores to determine a borrower's level of risk.

Three credit bureaus — Equifax, Experian, and TransUnion — calculate an individual's credit score. The higher your credit score, the better interest rate you're likely to get — which also means you'll have a lower monthly mortgage payment. Before you apply for a mortgage, it's a good idea to check your credit score and review your credit report to make sure everything is correct.

Whose credit score is used on a joint mortgage?

A joint mortgage allows two or more people to purchase a home together, and both buyers fill out a joint mortgage application.

One of the main benefits of applying for a joint mortgage is that you’ll have more income to put toward your home purchase.

Including two earners on your application means you're more likely to be approved for a mortgage, you may be able to borrow more money and you could purchase a more expensive home.

How is a credit score calculated on a joint mortgage?

On a joint mortgage, all borrowers' credit scores matter. Lenders collect credit and financial information including credit history, current debt and income.

Lenders determine what's called the "lower middle score" and usually look at each applicant's middle score. For example, say your credit scores from the three credit bureaus are 723, 716 and 699, and your partners are 688, 657 and 649. Lenders will then use the lower of the two middle scores, which is 657.

What if your spouse has bad credit?

The lower middle score system means both applicants' credit scores matter, but the lower score matters most. Therefore, the decision of whether to include a spouse (or another co-borrower) on a mortgage application comes down to which option makes the most financial sense.

If your co-borrower does have bad credit, there are a few options available:

1. Improve your co-borrower’s credit score

First, you could look for ways to improve your or your co-borrower’s credit score. Check their credit report to make sure it doesn't include any errors. Make sure all outstanding credit card debts are paid and that any remaining credit balances are under 30% of their high limit — a significant variable that gets factored into credit scores. 

2. Find a different co-signer

Another option is to find another co-signer. Ask a relative who has a high credit score to help you get approved for your mortgage. Every lender has different rules for co-signers, so check to make sure you can work with a co-signer.

Working with a co-signer can be a good short or medium-term solution that allows you to get into your new home and gives you or your partner time to rebuild credit. Eventually, if you and your partner’s credit history improves, you can consider refinancing the current loan and take the co-borrower off the loan and add the partner with improved credit. 

Assess your unique circumstances before you decide

Deciding to apply for a joint mortgage depends on which option will get you the best mortgage. On one hand, including the partner with bad credit could disqualify you for a loan. Even if you do qualify for a mortgage when one partner has bad credit, you might not qualify for a good interest rate.

On the other hand, applying on your own means the lender will only take into account your income and not your partner’s. This means you might qualify for a smaller mortgage. Regardless of whether one partner name is on the mortgage, his or her name can still be on the title of the home.

Understanding the ins and outs of credit scores and joint mortgages will help you and your partner take this major step together and get you closer to becoming homeowners. For answers to any questions you might have about joint mortgages, give our home lending advisors a call. They’re happy to help.