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Newlyweds: Build Your Credit For Your Future

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No matter how you phrase it, finances play a big part in how successful a new marriage is. According to SunTrust Bank, money is the number one cause of stress in relationships. Meanwhile, according to Time MONEY survey, couples who trust their partner with finances felt, more secure, argued less, and had more fulfilling sex lives.”

Newlyweds: Build Your Credit for Your Future

 

Newlyweds: Build Your Credit For Your Future

Many newlyweds share many things with their partners in many ways before marriage. Yet, finances aren’t normally one of those things that’s viewed in unison until after marriage.

Some couples lack basic financial literacy skills, causing them to make poor decisions with credit. These couples are put right to the test with post-wedding bills. Luckily, it’s never too late to take a step back, make some tough choices, and build or fix your credit.

What Do I Need To Know About Credit?

As long as you’ve formally borrowed money in some form in the past, you’ve probably established some credit history.

Whenever you’ll need to apply for future lines of credit, lenders perform a check of your credit reports to determine how likely you are to pay back any debts. Your credit reports display your credit history.

Credit scores are numbers that indicate your risk as a borrower and the likelihood that you’ll pay your bills. Many popular scoring models use a range of 300 to 850, with a “good” credit score is anything above 700.

Why Is Good Credit Important?

It’s important to build credit because many of the larger purchases in life that you’ll make require some sort of credit. By having higher credit scores, you’ll ensure that you get approved for lines of credit. Also, the higher your credit scores are, the more favorable rates you can secure.

Your credit scores and reports can impact you in several ways, including:

Getting a credit card

  • You can’t just get any credit card if you haven’t established any credit, or have a history of bad credit. The worse your credit history is, the worse the credit card terms will be. Meaning you’re more likely to be approved for cards with low credit limits, high-interest rates, and very limited rewards. If you have a great credit history, you’ll qualify for cards with great rewards and high credit limits.

Getting a mortgage

  • When you and your loved one look to move into a house and start a family, your credit could prevent the dream. With bad credit, it might be hard to get approved for a home loan.

Getting an auto loan

  • Similar to a mortgage, an auto loan is considered an installment loan, which means you’ll have unavoidable interest fees to pay. Interest adds up quickly on big-ticket items like cars and houses. Bad credit histories could cost you and your family extra money for years to come.

Renting an apartment

  • If you decide to rent, landlords want to know whether you’ll be able to pay your rent on time. Many landlords will perform credit checks on you and your spouse to make the final decision to rent to you.

Buying utilities

  • While renting, you have to put utilities in your own name, which may cause trouble if you have limited or no credit history. Utility companies, like other companies, want to be paid on time. They have the right to deny you service if your credit is limited, or may ask for a security deposit.

Finding insurance

  • While an insurance policy is not the same as a loan, the company is still taking a financial risk on you. They use your credit history as a part of a process to determine how risky you are to insure. Bad credit history can lead to higher premiums or denial of coverage.

Securing a cell phone plan

  • Believe it or not, most cell phone service providers perform a credit check whenever you open a new account. Now that most smartphones are sold on financing plans, you’ll have to pay an installment for your phone on each bill. Although paying your cell phone bill on time does not help you build credit, not paying it can lead to negative items on your credit reports!

Employment

  • Depending on where you reside, many states allow employers to legally consider information on your credit reports when deciding to hire you. Any negative items could be a red flag for the hiring staff and might cost you your dream job.

How To Build Credit

When used responsibly, credit cards can be one of the best tools to grow your credit scores. Just as carrying credit card debt affects your scores more than having non-revolving debts like student or auto loans, paying your cards off on time and in-full will help build your scores greatly.

Many cards are free to have and provide extra spending security in case you ever experience credit card fraud. Lastly, as you build your credit, there are some rewarding credit cards available that earn cash back as you spend on everyday purchasesResearch which card fits your spending and lifestyle.

Everyone wants good credit scores, but it’s important to understand the best way to build your scores as a couple is to know which areas affect your scores the most.

The two most popular scoring models are FICO scores and VantageScores. Although VantageScores are different from FICO scores, many of the same factors are considered and valued similarly.

The two largest factors of these scoring models make up approximately 65% of your credit scores.

35% of your scores are determined by your payment history. Any history of late payments or other delinquent behavior in terms of your credit cards and loans have a strong negative effect on your credit scores. Many late payments remain on your credit reports for 7 years.

The most important thing you can do to build and maintain good credit history is to pay all your bills on time. If you’re bad at remembering due dates, many providers set up automatic payment options to ensure you pay on time.

The other big 30% chunk of your scores are your “Amounts Owed” on your credit accounts. This section considers how many of your credit accounts have balances. Also, if you have credit cards, it considers your credit card utilization. This is the total balances across all your accounts compared to the total credit limit of the accounts. A high percentage of credit utilization means if you maxed out your credit cards. Expect your credit scores to drop if you have a high utilization ratio.

To affect this category of your scores, never max out any credit cards. Make sure you understand what your card’s credit limit is, and always pay your balances off in full every month, if possible. Carrying a balance monthly will add interest charges and potential late fees, which can all increase utilization, deteriorating your credit scores.

Bringing it Together

Although it may seem overwhelming, it’s easy to remember a few key points from the information above. The first is that your credit affects many of you and your spouse’s life choices. Things ranging from cars to homes all rely on your credit history.

Make sure to pay all your bills on time, and any credit card balances off in full. These two factors account for almost two-thirds of your credit scores!

Lastly, keep your credit limit in mind as you spend on any credit accounts. Maintain low balances and never apply for too many cards in a short period of time!

Newlyweds: Build Your Credit For Your Future was last modified: October 8th, 2018 by Rachel Sommer