talking credit scores and debt

Talking About Credit Scores and Debt In A Relationship

April is Financial Literacy Month, and now is a great time to take on the scary side of finances: credit scores. Understanding and talking about credit scores and debt is uncomfortable in every relationship, but taking it on together is key to a healthier, wealthier marriage.

All About Credit Scores

In a nutshell, a credit score is a 3-digit number that gives banks and lenders a good idea of how well you pay back your debts. There are a couple of different credit score systems out there, but most of us use the FICO score. It ranges from 300 (really, really bad) – 850 (you’re a Rockstar). Here’s a quick breakdown:

  • 800+ = excellent credit (lenders love you!)
  • 600-750 = pretty good
  • 550-600 = low
  • Below 550 = poor

When should I check my credit score?

We recommend pulling your credit score about every 6 months or so to get a good idea of where you’re at (note: it can swing pretty dramatically, especially if you take on or eliminate debt). This includes checking on your partner or spouse’s credit score too.

Why is good credit so important?

Short answer: everyone’s looking at it! From insurance companies to banks and car dealers, everyone looks at your credit to determine how risky you are. The better your credit, the more options you have.

What hurts my credit?

  • Late payments, including late medical bills
  • High debts owed (maxed out credit cards, for example)
  • Canceling credit cards

Having trouble? Don’t hide your head in the sand. Call your credit card companies or medical office. You’d be surprised at how many options are available to you!

Bad credit score. How to improve it?

Having a poor credit score can be scary, but it isn’t permanent. Here’s how to get that number up quickly:

  • Pay off that debt. This is, hands-down, the simplest and most effective way to get a better credit score. When you do, remember that emotions can matter just as much as the numbers do. Paying off high-interest debt first is the best strategy from a financial perspective, but paying off the smallest debt might be the better call, just because it feels better.
  • Keep credit lines open. Pay off your credit cards and keep them at $0 for at least 6 months (do not cancel your cards). Available credit is important in your credit score number so you want credit available to you that you’re not using.

Talking about Debt as a Couple

Taking on credit scores and debt isn’t the most enjoyable part of a relationship, but it’s very important. If you’re getting married, take your relationship to the next level first by checking in on each other’s credit scores and debts. Lay your cards out on the table and spare no details. You will need to come to an agreement on what’s an acceptable amount of debt (you may need to compromise) and agree to a solid debt reduction plan.

If your partner refuses to disclose debt, credit card balances and his or her credit score… run! This is financial infidelity, and huge red flag. Honesty about money and debt is critical to a successful marriage, and failure to do so can lead to an ugly, and expensive, divorce down the road.

How to Agree on Debt in a Relationship

Dealing with debt, whether you’re paying down credit cards or applying for a loan, is not just about the numbers. Emotions get involved and complicate things. Your money personalities are going to affect how you approach debt, and opposite money personalities are likely to disagree. The key is compromise and understanding.

A Saver/Security Seeker may balk at the idea of getting a business loan, for example, but taking a calculated risk to that their Spender/Risk Taker spouse can start a new business could be the right thing to do.

Remember, having debt is NOT the end of the world, and it doesn’t have to be a bad thing. Tackle your debts together as a couple, and you will have a healthier, weather marriage.

Want to improve your financial literacy? Check out the other articles below for some free tips and tools.

 

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