When you finally meet that special someone, who makes your heart bounce around your chest like a jumping bean during an earthquake, better check their credit! No? Okay maybe that isn’t at the top of the getting to know each other list but the longer the relationship progresses the importance of credit score will grow. Poor credit can sink financial dreams or at least complicate or limit them. Hopefully, if you are in a committed relationship you have open discussions about finances and personal credit. First, understand how a partner who doesn’t have the strongest credit report will affect your actions. When purchasing a home, you may not be able to include your partner on the loan. If your partner isn’t on the loan, then their income cannot be considered. This could limit the size and type of loan you are able to take out. Beyond that the car loan, that same as cash loan for the mattress and the unsecured debts will all be in your name. Wow, you have a lot of responsibility! In fact, your credit score may start to suffer because your utilization ratio increases. If your relationship were to unexpectedly collapse, you are the one left holding the bag of debts. Not that that would happen because you love each other like stains love my shirts (especially if it is a new shirt). Okay, great! Let us get to work on action steps to improve your partner’s credit.
Pay Down Existing Credit Card Debt
- The best way to improve credit scores is to reduce the balances owed on unsecured and especially credit card debts. The new FICO credit-scoring model puts a lot of weight on how much credit you are using and the percentage of available credit you are carrying over each month. Reduce this number to improve your score. Seek help if you are not able to reduce debt balances on your own.
Consider Adding Your Partner as an Authorized User to Your Credit Card(s)
- Check with the bank to be sure they report authorized user to the credit bureau. If they do, this is a fast an easy way to list a positive payment history on a credit report. Keep in mind, you don’t even need to give your partner a card to use. They are not responsible for the balance and don’t need it. They do need the report of on time payments on their credit reports.
Have Your Partner Open a Secured Credit Card
- They will need to put down a payment of around $300 that goes into a savings account to secure a credit card with a $300 limit. With the security, these accounts don’t require a good score. They still report payments to the credit bureaus so on time payments will begin to positively help your score. Conversely, late payments will hurt the credit score. So, make every payment on time.
Consider a Credit-Building Loan Through a Credit Union or Local Bank
- If you belong to a credit union or are considering joining a credit union, ask if they offer credit-building loans. Some credit unions offer 12-month loans for around $1000. They will automatically deduct the monthly payment to ensure it is not late and most importantly, they report to the credit bureaus to build a positive payment history.
- Couples that budget together stay together…sort of. Even if you are the one who sits down to figure out the spending plan you must communicate that spending plan with your partner in order to be successful. Work as a team to see that the plan is followed, and any needed adjustments are made. This means you need to have a weekly financial meeting. This is just a brief time to discuss the expenses and goals and your plans to meet them. It shouldn’t last longer than half an hour. If you have a partner that doesn’t have the strongest credit, then they have likely had some financial issues in the past. Be kind in your conversations. This is a chance for you to share your good habits and support your partner. Also, this isn’t a lecture and should not be a chore. For instance, my wife and I typically conduct our weekly financial meetings in the early evening with our beverage of choice. My beverage rhymes with “ear” and her beverage rhymes with “fine”. Fun!
If your partner doesn’t have the strongest credit, now is the time to start working together to improve it. Even if you are forced to take out a mortgage in your name only, you are likely to refinance the loan or move before that loan is complete. With a little effort, your significant other will be on the next loan with you. If your partner needs help paying down credit cards or other unsecured debts, consider making an appointment with a non-profit credit agency. We can help!