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New Goal for Your New Life Together: Becoming Credit-Wise
Many people planning to be married take time to reexamine financial priorities, set a new budget, and establish savings or debt reduction goals. Being credit-wise consumers means realizing that managing your credit requires similar planning and care-and doubly so when you are entering into marriage.
Think about your special personal and financial goals for the coming year. Are you planning a major purchase or a trip abroad? Are you working to establish financial stability and security? Since good credit takes time to build, planning for your future together should include checking your credit report. This is a great time for each of you to request a copy of your credit reports and look them over--not simply for inaccuracies, but for ways you might improve your overall credit status.
Many of life's major changes, such as marriage, can impact your credit, but keeping these credit-savvy tips in mind can help you keep and build your credit together, so it's always available when you need it.
Your Marriage and Future
Getting married brings many financial opportunities to couples who can combine their resources. As you plan your wedding day, plan for your future too and take these steps to keep your credit in tip-top shape.
Notify creditors and credit bureaus if you change your name. When you change your name at marriage--or any other time--it's important that you make sure your creditors and the credit bureaus are notified of the change. Otherwise, you might lose your credit history.
Keep credit in your own name in addition to joint accounts. Women especially must take care to keep some credit in their own name. (e.g. "Jane Smith" rather than "Mrs. James Smith"). Every year women who have never paid a bill late are denied credit because they have no credit history in their own name.
If either you or your spouse-to-be has had trouble getting credit alone, try setting up a joint account to capitalize on your shared income and/or one person's stronger history. As your joint account history grows, you should each acquire and maintain an account of your own as well, to establish your credit on an individual basis. As you establish individual accounts, you might close some extra joint accounts, keeping only those you actually use.
If you anticipate making a large purchase with one of your credit cards, you might want to request a credit line increase now, so you know the credit is available when you're ready to buy.
Building Good Credit Together
When you apply for credit, the lender will undoubtedly check your credit report. The information in your credit history helps lenders decide how much credit and what interest rate you are eligible for. The better your credit history, the more likely you are to qualify for the best credit deals, including rates on a mortgage. But what will creditors be looking for?
Pay Your Bills on Time
Creditors always look for indications that the prospective borrower is a good credit risk: a person who will pay back his or her debts in a timely fashion. Obviously, a history of on-time payments demonstrates that you are just such a person. But that doesn't mean your credit history must be perfect for you to qualify--few people's are, after all. "Good" credit can include a few minor dings in your report, such as up to two credit card payments 30 days late or one installment payment, such as an auto or student loan payment, 30 days late. No payments of any kind should be more than 60 days late and there should be no outstanding public record debts such as judgments or liens.
Keep Your Debt Load Reasonable
One factor any creditor must assess before offering credit is the total debt of the person applying. If a large portion of your income each month is already committed to paying off other debt, the lender will wonder if you may have trouble paying back an additional loan. As a rule of thumb, financial experts say that non-mortgage debt payments should not exceed 10-15% of your take home pay each month. If your debts are currently too high, consider ways to pay some down before you apply for new credit.
Avoid Unnecessary Inquiries
Whenever you authorize a creditor, employer, or other business to check your credit report, an "inquiry" is added to the report itself--a note that someone has checked your credit. An inquiry usually stays on your credit report for two years. A lender considering you for a loan will look at the number of inquiries recorded there and when they took place. A large number of inquiries occurring in a short period of time may be interpreted as a sign that you are either applying for lots of credit because of financial difficulty or overextending yourself by taking on more debt than you can actually repay. (Checking your own credit report, however, does not impact your credit rating.) Therefore, it's always a good idea to minimize inquiries into your credit report. If you're shopping around for mortgages, for example, don't let every lender you consider run a credit check. You might have to settle for slightly more approximate estimates on what the lenders can offer you, since they can't verify your credit history. But that's still better than doing all that shopping around only to find that the lender of your choice now perceives you as a less solid credit risk and wants to charge a higher rate.
Eliminate Excess Unused Credit
Just as a high number of inquiries suggests you may be overextending yourself, a lot of available credit means you have the capability to overextend yourself in the future, even if you have not done so in the past. Although people may perceive having several credit cards with high limits a sign that they have good credit, too much of this good thing can make them seem like a poorer credit risk. The lender needs to be reasonably sure that you will continue to be able to repay your debt in the future. But if you have thousands of dollars of unused credit available, you might spend it all the month after your loan goes through and suddenly have more debt than you can pay off. To prevent this concern from arising, you should close unused credit accounts before applying for a large loan, and/or consider having your credit limits reduced. If you do either of these things, make sure to ask the creditors to record that the account was closed or changed at the consumer's request--you don't want anyone to get the impression the bank closed the account because of problems with your payment habits.
Of course, as with most worthwhile plans, building good credit together requires a long-term commitment. So set your credit-wise plans for your new life together in motion now and stick with them. By doing so, you may reap the benefits of that commitment for a long time to come.
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