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
For years, consumer advocates have warned of abuse, deception and unfairness in credit-card debt collections by banks and third-party debt collectors.
This week, the Consumer Financial Protection Bureau and the attorneys general of 47 states and Washington, DC brought an enforcement action against JPMorgan Chase for abuse, deception and unfairness in credit card collection cases.
Some highlights from the action:
o On some 500,000 credit card accounts it sent to collections litigation in recent years, Chase used illegally sworn documents to obtain false or inaccurate judgments for unverified debts.
o The bank sold "zombie debts" to third-party debt collectors, including accounts that were inaccurate, settled, discharged in bankruptcy, not owed or otherwise not collectible.
o Chase helped those third-party collectors obtain court judgments against borrowers by providing more than 150,000 sworn statements attesting to the accuracy and validity of the debt. But according to the consumer bureau, "Chase systematically failed to prepare, review, and execute truthful statements as required by law."
o Chase failed to notify customers and the courts when it became aware of these problems.
The enforcement action requires Chase to stop collecting on the debts it sent to litigation between January 1, 2009 and June 30, 2014 and to notify customers that it will not try to collect. It must contact the major credit bureaus to request that the judgments not be reported against those consumers. It also must refund at least $50 million to customers who have already paid up. The refunds are for amounts that the customers were told to pay above what they owed when the debt was referred to litigation, plus 25 percent of the excess.
The enforcement action also requires Chase to notify customers when their account is sold, including the identity of the purchaser, the amount owed, and how the customer can obtain further information at no charge. It must provide third-party collectors with detailed documentation on the accounts being sold, and is prohibited from selling accounts that do not have the required documentation. Any sworn documents about the debts must be signed by hand and reflect the signer's direct knowledge.
Those are all significant reforms.
But they can't and won't remedy the damage that has already been done. For many borrowers, wrongful default judgments led to garnisheed wages, frozen bank accounts and property liens, as well as difficulty in obtaining credit and employment.
Chase must pay a penalty of $30 million to the consumer bureau and make a payment of $106 million to the states.
It is a small price to pay for illegal practices and damaged lives. But there is reason to hope it will mark the end of a sordid chapter.
When it comes to your financial health, minimum payments on your credit cards are poison.
A $2,000 credit balance with an 18% annual rate, with a minimum payment of 2% of the balance, or $10, whichever is greater, would take 370 months or just over 30 years to pay off.
Making minimum payments on your credit card is a treadmill to nowhere," says Greg McBride, chief financial analyst at the personal finance website Bankrate.com. During that time, you would end up paying more $4,931 in interest and charges, 146% more than the original balance on the card, according to an online calculator on credit-card comparison site, CreditCards.com.
Most people are unable to make these calculations themselves. When given a similar calculation on how long it would take to pay off a credit card with just minimum payments, only 2% of people were able to answer correctly, according to the survey by TotallyMoney.com, a UK-based personal finance website. They also underestimate the amount of interest they'd have to pay off: Only 4% were able to give the correct amount of interest. What's more, one-third of respondents thought they would actually be able to avoid paying interest by making the minimum monthly payment.
There's also a broader impact. Around 30% of the FICO credit score is based on how much people owe on their accounts. "Owing money on credit accounts doesn't necessarily mean you're a high-risk borrower with a low FICO Score," according to FICO. "However, when a high percentage of a person's available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments." In some cases, showing a very small balance and never missing a payment shows a person is good at managing cards and may be better than carrying no balance at all.
It pays to manage credit cards carefully. And paying off credit cards on a large number of accounts with outstanding balances may also be damaging to your credit score and indicate higher risk of over-extension," FICO says. "Someone who is close to maxing out several credit cards has a high credit utilization ratio and may have trouble making payments in the future."
And having no credit cards at all is another no-no, experts say. Credit cards are an essential financial tool when embarking on a career and building a credit history, says Ben Woolsey, president of credit-card advice website CreditCardForums.com.