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By Lois Sullivan
When you enter into a long-term relationship, whether through marriage or a personal commitment, you're typically agreeing to a few basic principles. You might agree to support your partner through life's challenges and build them up when they feel worried or apprehensive about the future. Many established couples share their financial details with one another, especially if they plan to make joint purchases, such as a home. If you're struggling to achieve your financial goals due to a partner who has a less-than-stellar credit score, check out this guide to help them improve it.
When you met your spouse or partner, you might have fallen in love with their personality traits and felt drawn to their appearance. While these elements of a relationship are certainly important, there are other factors that can be easy to overlook. It's essential to understand a person's financial history and habits before you enter into a partnership or marriage with them. The way one person spends money can have a lasting effect on the relationship, especially if their habits differ drastically from how the other person in the partnership prefers to spend.
Disputes about finances are common in partnerships and marriages. According to a study performed by Northwestern Mutual, nearly 20% of Americans have financial disagreements with their significant others at least once a month. Over 40% of those surveyed reported feeling the impact of financial struggles on their relationships with their partners or spouses. Understanding how your partner spends and their financial goals can help you determine whether they align with your aims and habits.
Your partner's credit score can also affect your ability to qualify for a loan now and into the future. If they're in the habit of spending more than they earn and are entering the relationship with a lot of debt, this can impact your combined debt-to-income ratio, which factors into how much of a loan you can qualify for. A good credit history offers access to necessary resources at more reasonable rates, including loans to buy homes, cars, and other costly items. When you're legally bound to another person, their credit history factors into your requests.
Now that you know why it matters, you can follow these tips to help a partner improve their credit score and boost their buying power:
Opening a short-term joint credit account can help your spouse build and improve their credit while leaning on your financial history. A short-term account might include a vehicle loan or a personal loan with a term of three years or less. It can be difficult to separate joint debt in the event of a divorce or breakup, but it's worth opening this type of account if you're committed to helping your spouse or partner improve their credit score.
If you have good credit and an open credit card account, consider adding your partner as an authorized user on the account. Not all lenders report the activity of authorized users to credit bureaus, so before you make the change, be sure to verify that doing so will benefit your significant other. If your credit card company does report the activity of authorized users, your timely payments and history of responsible usage can help improve your partner's credit score.
A secured credit card is backed by a cash deposit that's close to or equivalent to the card's total limit. If your partner’s credit score affects their ability to obtain a traditional credit card, getting a secured credit card can be easier. Since a lender receives a portion of or the total amount allowed on the credit card, the risk is lower and creditors are usually more willing to offer this type of credit account. By making payments on time and in full, your spouse or partner can demonstrate good habits and get a boost to their credit score.
Budgeting is an important aspect of financial stability, as it's nearly impossible to be stable in your finances if you're always spending more than you make. It's important to have an open discussion about setting a budget and encourage your partner to talk about their needs and wants. The National Foundation for Credit Counseling (NFCC) reports that less than half of Americans use a monthly budget to track household spending. If you aren't currently sticking to a budget, you're certainly not alone, but you can make a change and improve your habits together.
Establishing a budget begins with an honest assessment of your combined finances. Start by determining what each of you brings in on a monthly basis, as well as the essentials that you have to pay for each month. Examples of essentials include housing, transportation, medical, utilities and food costs. If you have any outstanding debt that you're paying toward each month, this amount should also fall under the essentials category.
You can also include non-essential items in your budget, such as personal care and entertainment. As long as you can stick to the amount set forth for each category, you'll be living within your means and avoiding unnecessary debt. But determining how much to spend each month depends on what you earn and how much you're trying to save. By having this discussion with your partner, you can make sure you're both on the same page and aware of what you can spend in each category.
It's important to feel like you're working toward shared goals in a long-term relationship. Feeling like your partner supports your efforts and makes similar efforts can boost the strength of a relationship and ensure that everyone is satisfied. But if you're not aware of your partner's financial goals or they don't know what you're working toward, you might feel resentful of one another. Having the discussion is the first step in establishing goals you can share and work toward.
You might have short-term and long-term goals you're trying to achieve, and you can talk about both of these with your partner. An example of a short-term goal might be setting up a savings account and achieving a balance of $1,000. A long-term goal might be paying an additional $100 each month toward your student loans or mortgage loan to bring the balance down faster. If you have or want any children, you might also be planning to save for your kids' future needs, such as attending college or making a down payment on a home.
By making changes to spending habits and taking smart financial actions, you can help your partner raise their credit score, which can benefit you now and in the future. Your buying power often depends on the credit history and habits of your spouse, particularly when you need to qualify for a loan together. With good communication and determination, you and your partner can be on the road to financial success!
Check out these additional posts about credit history and debt:
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