Dear Readers: Imagine this scenario: Over a wonderful dinner, you and your sweetheart have discussed the future, what you each want out of life, your dream house, the possibility of a family, and everything seems to be pointing to your happiness. Then, the love of your life graciously offers to pick up the tab, hands over a credit card — and the card isn’t accepted. And then a second credit card gets the same response. Oops. Should warning bells go off? Or at least a caution light?
I’ve always believed that finance and romance should go hand in hand, and that couples need to be as open and honest about their financial feelings as they are about everything else. In fact, a study released last summer by researchers at the Brookings Institution, the Federal Reserve Board and UCLA narrows the financial focus for couples down to a very quantifiable number: your credit score. The study proposes that matching high credit scores can indicate not only financial compatibility but also a strong romantic match.
So, as Valentine’s Day approaches, I thought I’d give my readers’ love lives a potential boost by talking about the best way to boost their credit scores. Because if there’s one thing that can dampen the romance in a relationship, it’s not being able to get that loan or that mortgage — or even that perfect job — due to lousy credit.
Five Steps to Better Credit
Before we get into how to build a better credit score, let’s talk about why it’s important. Your credit score isn’t just about your ability to borrow money. It can affect many aspects of your life. Some companies use credit scores in making hiring decisions, landlords can use credit scores to screen rental applicants, and some insurance companies use your credit score to help determine your premium.
Plus, negative credit information generally stays on your credit report for seven years, so mishandling credit today can haunt you in years to come.
What can you do now? If you don’t know your current score, you can purchase it from one of the three major credit bureaus — Equifax, Experian, or TransUnion. Or better yet, some credit card issuers will provide credit scores for free, so be sure to check with your provider first. To put things into perspective, the top score is 850, the median is 725, and 760 or higher will typically qualify you for the best deals. Then, whatever your score, take these steps to keep it as high as possible:
–Pay your bills on time. Paying your bills on time and in full where possible is the best thing you can do. This alone accounts for about 35 percent of your score.
–Use credit cards with care. How much and how often you borrow makes up 30 percent of your score. Keep your credit card balances low — no more than 25 percent of your available limit.
–Increase the length of your credit history. The longer you have credit — and use it wisely — the better your score. Your history accounts for 15 percent of your score.
–Minimize new credit requests. Applying for multiple credit cards or loans in a given period of time can lower your score. New credit requests account for 10 percent.
–Hold different kinds of credit. About 10 percent of your score depends on the type of credit used. A consumer with revolving debt i.e., credit cards, a car loan, and a mortgage, and who keeps up payments, will have a higher score than someone who uses just one form of credit.
Why Couples Should Talk About This
I believe the way people handle money says a lot about them. It can indicate a sense of responsibility or lack of one. It can suggest how trustworthy a person is. And it can reveal attitudes about planning and working toward a goal. Ultimately, how you handle money reflects your values.
All of these things are relative and difficult to quantify, but a credit score is pretty tangible. Of course, your score can be affected by things out of your control. For instance, if you lose your job, you may end up being late on your bills. But if one partner in a relationship can’t handle debt, consistently runs up bills he or she can’t pay, or regularly falls behind on everyday financial obligations resulting in a low credit score, that can be a harbinger of future financial problems — and perhaps future relationship problems as well.
Making a Good Financial Match
So, if Valentine’s Day has you lovingly planning your future together, make sure you’re also financially compatible. Talk about your finances and your individual expectations. Lay it all out on the table: what you own, what you owe, your individual and mutual financial goals, and how you’ll share every-day and long-term financial responsibilities. Get your personal credit scores. If one of you has a lower score, talk about why this is, what this means, and how you can work together to raise it.
Whether it’s saving, paying off debt, buying a house or paying for a child’s education, today’s perfect romance will be affected by the future financial issues of having a life together — for better or worse. You can make it better by talking about these issues now, boosting your individual credit scores, and perhaps, at the same time, increasing your chances for a long and happy relationship.
Carrie Schwab-Pomerantz, Certified Financial Planner, is board chairwoman and president of the Charles Schwab Foundation and author of “The Charles Schwab Guide to Finances After Fifty.” Read more at http://schwab.com/book. You can email Carrie at firstname.lastname@example.org. For more updates, follow Carrie on LinkedIn and Twitter (@CarrieSchwab). This column is no substitute for individualized tax, legal or investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax adviser, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Photo: A couple holds hands on the beach. Flickr User Terrell Woods https://www.flickr.com/photos/terrellcwoods/8976772514/