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
Q. I work for a small company and a new owner is keeping all of us on but he is not going to continue the 401(k) plan. Im 28, single, and dont have a lot of money in the existing plan but want to do the best with what I have. I have about $12,000 in the plan and I have about the same amount of debt on a credit card with an interest rate of 10 percent. When I was in college, I was told by a financial advisor that I needed to get a credit card. She said this would enable me to establish a credit history and would be helpful when I wanted to buy a car or home. She waived the application fee and I got a credit card! I always pay more than the required minimum and have never made a late payment. I pay $250/month on my credit card and contribute the same monthly amount to my 401(k) plan.
Currently, Im in the 15 percent tax bracket and a friend/co-worker of mine is suggesting that I take the $12,000 from the plan when it is terminated and pay off my credit card debt. He says that since my interest rate and tax bracket are about the same I should pay the debt off and that I will have plenty of time to save for retirement since Im so young. My parents are encouraging me to keep the money in some sort of retirement plan since they regret not having saved enough money themselves to live comfortably in retirement. Im not sure about all of my options and definitely dont know what would be best for me. Any help you can provide would be appreciated.
A. You should be proud of your retirement savings; not so much about your credit card debt but maybe it is the result of some emergency issues and not just things you couldnt afford. Im betting that the college financial advisor worked for the credit card company. I agree that it is good to establish credit but you can do so without going into debt. One of your primary financial goals should be to pay off the credit card and once that is accomplished only buy and charge what you can pay off in full each month.
I dont think you should cash in your 401(k) to pay off your credit card debt. Once the plan is terminated, roll the money into an IRA. Do some research or hire a fee-only adviser to help you select a good moderately aggressive no-load mutual fund with which to establish your IRA. You should do what is called a direct transfer from your 401(k) plan to the mutual fund. The customer service representatives where your 401(k) is held and those at the selected mutual fund family will be able to assist you in completing the necessary paperwork for the transfer. If you dont roll the money into an IRA, you will owe Federal and State taxes in addition to a 10 percent early withdrawal penalty. Assuming you are in the 15 percent Federal tax bracket and 5 percent State tax bracket; your $12,000 will be reduced by $3,600 leaving you with $8,400 after taxes and penalties.
I suggest you stop contributing to your 401(k) plan and apply that monthly amount to your credit card debt. At the 15 percent federal and 5 percent state tax bracket your $250/month contribution is equal to $200 in after tax dollars. Adding this amount to the $250 you are currently paying toward your debt will allow you to pay off your credit card in 31 months. Once that is paid off, begin contributing the $450 to a retirement plan. If your employer doesnt offer a plan, contribute to a tax-deductible IRA or a Roth IRA. In 2015, you can contribute up to $5,500 to an IRA ($6,500 if age 50 or over).
Dear Dave: My husband and I are 28 years old. Were completely debt-free, and we each have great jobs. We dont talk a lot about this kind of stuff, because weve found it causes other people to treat us differently. We realize how incredibly blessed we have been, so we always try to give God the credit, save, tithe and give regularly, and not brag about these things. How would you recommend handling a situation like ours? -- Amanda
Dear Amanda: When you start to win with money, build wealth and achieve some of your goals, you discover pretty quickly that theres a very small group of people you can celebrate with. It sounds like youve discovered this already.