Are You Aware of Your Partner’s Financial Health?
Finance: it’s not the most romantic conversation. Unless you’re both passionate accountants, there are undoubtedly better ways to spend ‘date night’ than by pouring over bank statements or digging deep into one another’s financial histories.
That said, as a relationship evolves, talking about finances is an important conversation. If things progress positively, knowing one another's financial situations can save an uncomfortable surprise later.
Read on to discover why open dialogue over finances is important for a healthy and harmonious future.
Here’s Why the Finance Conversation Is Key
At some point, you'll plan to share a credit card, buy a house, or apply to finance a new vehicle. While there are workarounds, an undesirable credit score can significantly impact these major life moments, often resulting in higher interest rates, an extra layer of stress, and possible damage to your relationship.
Financial transparency is also essential in case an emergency arises that you’re financially not prepared for — like your fridge breaks down, your car needs repairs, or your pet gets sick. In this instance, a line of credit can help you out.
However, one of the most important tips for applying for a line of credit is knowing that a strong credit score can greatly improve your chances of qualifying. While there are options available, both of you having a poor credit score could impact how a line of credit looks for you.
The good news is that knowing facets of one another’s financial health, like a poor credit score, gives you time to improve it before surprises.
While you won't see overnight results, if you plan to stick together for the long haul, credit can be improved following these steps.
Get an Up-to-Date Report
First, ask for an up-to-date credit report. This won’t affect your rating, as it's considered a 'soft hit.’
A current report will allow you to identify any inaccuracies while giving you a starting point to advance.
Pay off High-Interest Debt
Implementing what’s known as the ‘avalanche’ method, strategize together and find a way to set money aside each month to pay off high-interest debts. Making payments on or before the due date and paying the bare minimum (and more if you can) are great places to begin.
Moving forward, it’s vital that payments are never missed.
Lower Your Credit Utilization Rate
Lean less on credit. A credit utilization rate is pretty much as it sounds; it’s an indicator of how much credit you’re using, either on credit cards or lines of credit. It’s calculated by how much you owe in credit, which is then divided by the limit.
A low credit utilization rate — one that’s below 30% — indicates you're leaning less on credit and, by proxy, keeping a good handle on your finances.
Don’t Close Credit Card Accounts
It might be tempting to figuratively shut the door on old debt by closing paid-off credit card accounts once you’ve paid them off. This can negatively impact one’s credit, however, as the utilization ratio mentioned above will have one less avenue to divide the limit over.
Another knock against closing a credit account is that it will reduce your credit history, and a long credit history can benefit your score. Chat with a financial advisor at your bank for their insight.
The Takeaway
The positive news is that your credit report remains an individual entity even when you're married. However, as you look to the future together, you’ll undoubtedly want to merge most things, including your finances.
By forging a transparent relationship regarding finances, you can move forward together, with far greater confidence and peace of mind.
