Build Good Credit Together
There are lots of good reasons to be honest with your partner. Building good credit history is one of them.
If either of you is holding on to a bad credit score, it could sink your chances for a mortgage and any other form of joint credit. Lenders always review both applicants on a loan, and the one with the weaker credit history usually determines the interest rate.
That's why financial experts give the same advice as relationship coaches when people pair up: Talk to each other.
If you're planning to share a life, "It's time to work on this issue as a couple," says Terri Orbuch, marriage and family therapist and author of "5 Simple Steps to Take Your Marriage from Good to Great."
Here are five tips that every couple can use to build good credit, whether you're just starting out or celebrating a 50th wedding anniversary.
Talk About Your Credit
Just what you need, right? Another "talk."
But this talk is really important. It's as important as those discussions you had when you were dating about religion, kids and basic values.
Each time, you wanted to know what you were getting into. And so it is with your partner's credit history.
Yes, this could be an uncomfortable conversation. But in the long run, it's a lot healthier for the relationship, Orbuch says.
If someone keeps a bad credit history secret, it "eats away at the trust in a relationship," Orbuch says. "And that, actually, is more difficult to repair over time."
Learn How Credit Works -- Together
You won't improve if you don't know the rules.
If you want to rack up high scores, you both need to understand the basics of credit and credit scoring, says Jill Gianola, CFP professional and author of "The Young Couple's Guide to Growing Rich Together."
Three things you might not know:
- Payment history is a huge part of your credit score. In most scoring systems, your record of paying on time (or late) makes up roughly one-third of your score.
- Carrying a balance on those credit cards? For your optimum score, you want to keep your charges to 10% (or less) of your credit line and pay bills in full every month, says Barry Paperno, community director with Credit.com.
- Each of you is fully responsible for the entire balance on your joint accounts, says Paperno. (Lenders don't see it as a 50-50 split.)
Want to learn more?
Make it a point to find a few favorite, trusted sites (such as Bankrate.com) to learn what does and doesn't impact your credit score. And share what you learn, Gianola says.
Make a Plan
Now that you've revealed your credit histories, it's time to figure out how to move forward together.
This can be a touchy subject, so watch that attitude as you proceed. Remember, your partner is revealing a very private (and possibly messy) side of life. So be curious, not critical, says Sue Hallowell, couples therapist and co-author of "Married to Distraction."
Approach past mistakes "from a problem-solving point of view," Hallowell says.
One way to get results while keeping tempers in check is to learn how to talk about money differently, Orbuch says.
If you have a bad credit history, don't say, "I can't catch up" or "I have a terrible history," Orbuch says. Instead, say "It's time to control my finances," or "It's time to get a handle on my credit history."
Every couple will have different strategies for boosting their credit. It could be as simple as setting up automatic payments for a partner who has trouble paying bills on time.
You know your scores. You have a game plan. But you still need to connect with each other regularly to see how you're both doing and where you both want to go.
Orbuch recommends a two-pronged approach to keep those credit conversations going.
"You first want to sit down every three to four months and have this simple talk," she says. Ask: Where do we stand now? What are our short- and long-term goals? How do we reach them?
The second kind of talk can be less frequent, but it'll likely spark more emotions. It should be about what money means to each of you and what you want from your credit and your finances.
You want to cover subjects such as: What are your strengths and weaknesses with credit? What are your goals and your fears? And how did your family handle money and debt?
Remember, you're in this together.
"It's so important to be equal partners," Orbuch says. While it's not unusual for one of the partners to play the primary role in managing the finances, it is also "really important for both partners to be involved."
Keep Some Credit Solely in Your Own Name
All relationships end. When that day comes, and your credit accounts are jointly held, you risk either losing them entirely or having those credit lines reduced, Paperno says.
Meanwhile, you'll be on the hook for the total balance of any joint accounts until they're paid in full.
So it makes sense to maintain some accounts on your own. With solo credit accounts, you have total control over how much you charge. You're responsible for the balance, and creditors are looking solely at your finances to determine how much they're willing to lend.
It's also "extremely important psychologically" to keep a certain amount of financial independence, Orbuch says. Each partner, she says, "needs to have an identity that's separate" from his or her significant other.
Copyright 2012, Bankrate Inc.