You can share many things as a married couple, but one thing you wont share is your credit profile. This doesn't mean you should disregard your partner's credit, though. While your credit reports and scores aren't merged in marriage, when the two of you apply for a joint credit card or loan, both of your credit profiles are taken into consideration. To score the best interest rates, it's beneficial to know where you each stand and what you can do to aim for or sustain a great credit profile.
If your spouse is just beginning to build credit history, here are three tips to help him or her reach that goal.
1.Help your spouse understand the fundamentals of credit.
Credit can be puzzling. One of the best things you can do is help your spouse understand key credit concepts, including...
- What goes into a credit score. By understanding what factors credit scoring models care about, your spouse can know what to work on. For example, your credit card utilization rate and on-time payment percentage are two of the most important aspects of credit management. Knowing this, your spouse might make a greater effort to pay bills by the due date and avoid using a high percentage of available credit.
- Major mistakes to avoid. It's a lot easier to damage your credit health than it is to improve it. Encourage your spouse to avoid applying for several credit accounts at the same time, maxing out credit cards and engaging in other habits that could impact his or her score negatively.
- Habits that can build a healthy credit history. Along with warning your spouse about mistakes that could damage credit, stress important good habits such as monitoring accounts and credit regularly, actually using the credit granted and paying bills on time and in full.
By sharing these credit basics with your spouse, you can empower him or her to start a credit journey off right and make smart credit-related decisions in the future.
2.Consider financial actions that could help your spouse build credit.
Making your spouse an authorized user or joint account holder.
Do you have good credit? Your positive history could help build up your partner's credit. For example, by adding your husband as an authorized user on your account, you'll allow him to use your account and "piggyback" on the account's credit history. Since the account information will usually show up on both your credit report and the authorized user's report, this account could help build his credit as long as the payments are made on time and the balances are kept low. However, keep in mind that some scoring models weigh this factor differently than others.
Adding your spouse as a joint account holder is a similar but much more committed strategy. Unlike authorized users, joint account holders are held responsible for the debt associated with the account, and the joint nature of the account can be harder to terminate.
Seeking new credit that is the best fit for your spouse.
While the authorized user or joint account holder strategy can be useful, your spouse may eventually want to get credit on his own. If he's still new to credit, he may not be approved for a conventional credit card or may be subject to higher interest rates, so it's important to pick a card that's more suitable for those just starting to build credit. For example, a secured card could be a workable alternative. These cards typically have higher approval rates, as they usually require a deposit that is then used as the credit limit for that account. Alternatively, if your spouse is a frequent shopper at a particular store, a retail card may make the most sense, as those can be easier to qualify for. Just be sure to stress the importance of paying the balance off each month, as these cards tend to have higher interest rates.
3.Review your spouse's credit report and scores together.
Does your wife have an established credit report? Go over the details with her and encourage her to pull reports regularly. Credit reports can be intimidating, so if it's her first time seeing one, explain each section, show herhow to spot red flags and stress the importance of disputing errors and keeping that report as accurate as possible.
After your wife has a long credit history, there should be enough information on the report for her to receive a credit score. She should then keep an eye on this score, as doing so is a great way to learn firsthand what actions affect her credit. In short, she can use these observations to guide future decisions and keep working toward better credit.
The bottom line: Credit
doesn't need to be scary or confusing for your spouse. Use these tips to help
empower each other to build credit. Whether you're dreaming of buying a home,
starting a business, getting a rewards credit card or even getting a new cellphone
plan, a good credit score could provide the two of you with better options.
Financial Wellness Series
Presented in partnership with the National Affordable Housing Corporation, Read Saskatoon and Affinity Credit Union.
Winter 2015 Schedule
Budget Boot Camp
Meeting Room, Cliff Wright Branch
Jan. 14 6:30 pm to 8:30 pm
Get your finances back on track this year. Learn tips and strategies to move toward your financial goals.
Presented in partnership with READ Saskatoon.
Credit Building Program Workshop
Auditorium, Cliff Wright Branch
Feb. 2, 17 and 23, 6:30 pm to 8:30 pm
The Credit Building Program consists of three separate workshops. Although you are welcome to attend any one individually, you will receive a certificate of completion for attending all three. Presented in partnership with NAHC. To register for one or all of these workshops, go to nahcorp.ca
Workshops currently offered include: Credit Basics (Feb. 2), Money Management Budgeting (Feb. 17), and Becoming a Homeowner (Feb. 23)
Home Owner Preparation Education (HOPE) Course
Auditorium, Cliff Wright Branch
Feb. 26, 6:30 pm to 8:30 pm
The HOPE Course ensures the success of each new homeowner receiving financial assistance from the information to first-time homebuyers on maintenance, budgeting and condo living, among other topics. The course is completed during one four-hour session. Presented in partnership with NAHC. To register for this workshop, go to nahcorp.ca
According to a Bankrate study reported by MSN, Virginia ranked number eight on the list of the ten states with the most credit card debt.
The study found Virginians owe an average of just over $7,000 on their credit cards.
The national average is around $5,800.
To make matters worse, the amount of time it takes for us to pay off that debt is about 10.3 years.
Local financial experts say this can all be avoided by following a few steps.
First, spend less than what you earn.Dont rely on the easy access of credit.
Second, have a disciplined spending plan - that details just how much you need to spend for each category of expenses.
Lastly, if you have a single credit card for emergencies, keep it at home under lock and key.
Even better, Tax and Estate Planner Rick Huff says building up a rainy day fund could eliminate the need for a back-up card all together.
Emergencies will happen. Its not a matter of if, its a matter of when. So, if youre saving in your emergency fund, you have the monies available to take care of car repairs, medical emergencies and anything else that comes up, Huff said.
He also advises those already in debt to pay off the card with the highest amount owed - and the highest interest rate - first. Also, as hard as it may be, do not continue spending on credit cards while trying to pay them off.
I have developed a strategy that works for me. On Dec. 19 (the day of the month when my new Visa card cycle begins), I make a lot of year-end major donations that are tax deductible and are a big reason I get a refund. I dont have to pay the Visa bill until mid-February. Often the tax refunds come in about the time I pay the Visa bill! So its a wash, and fun to play the refund game!
Wrote Bill R. Teer of Fairfax, Va:
Your column implied that it is a mistake to have too much withheld from your salary and give the money to the government interest-free. In todays interest environment, I strongly disagree with you. If an individual had the discipline to save $100 per month rather than having it withheld, the savings at the end of the year would be $1,200 probably in a money market account with an interest rate of close to zero percent.
As I believe it is unlikely that the discipline to save the $100 per month would be there, come refund time there would be nothing in the bank and no refund. So why not have forced saving in the form of withholding and get the refund?
Lots of other people argued that last point, too.
In this extremely low-interest environment, how much money do you really think an individual would gain on that refund, which would actually be trickling in with every paycheck by adjusting their deductions? one reader wrote.
I see your point that you dont want someone else having use of your money all year, but from a practical standpoint, the amount of interest lost is probably pretty small. And, if an individual sees that check as a bonus and uses it to pay off a credit card or part of an auto loan, then thats probably a good thing since having a few bucks added to the paycheck will most likely not be noticed and will just be spent on another cup of Starbucks.
Come at this issue like everyday people, suggested William Adams from Springfield, Va.:
Think of letting the IRS hold your money as a very cheap premium on an insurance policy against having problems with penalties and interest from the IRS as well as gaining peace of mind over the stress of having to meet a deadline when you have other things pressing and cant file on time.
Its true that the interest you get on deposit accounts almost makes you feel as if youre paying the financial institution to keep your money. But an extra $100 or $200 a month could be used to tackle high-interest credit card debt.
Lets say you do use the refund to pay down some debt, as many say they will (68 percent), according to a survey by the National Foundation for Credit Counseling. But over the previous year, you had been racking up interest charges while making just the minimum monthly payment.
In 2014, the rates on credit cards were at record highs, according to Creditcards.com. The national average APR was 15.02 percent.
But heres the thing on the issue of refunds:
Part of my mission is to challenge people to develop more discipline. I want them to take every opportunity to be better money managers.