When you're thinking of pickup lines, probably none of them include, "Can I see your credit report?" Talking finance isn't exactly romantic, which is why most of us don't - not even once we decide to move in together or get married. Yet financial disagreement is one of the top reasons couples split - often after one person has ruined the other's credit. So how do you prevent your partner's bad financial habits from ruining your relationship? Here are five ways your partner can ruin your credit, and ways you can prevent them. (For more, see Combining Credit For A Happy Financial-Ever-After.)
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- High Debt
You were always careful not to take on too high of a debt load - you have seen how it ruined your friends or family members' lives. Maybe your partner wasn't quite so careful, or maybe he or she went through rough times and now has to pay off some debt.
Before combining households, ask about any accounts your partner has - show each other your credit report in the spirit of honesty. High debt-to-income ratios will lower your credit score, so particularly if you're getting married, so make sure you know exactly what each of you is bringing to the table in assets and liabilities. Come up with a realistic plan to pay it down and plan to check on your progress periodically. (Learn more in Are You Living Too Close To The Edge?)
- Careless Bill Paying Habits
It's just an electric bill, who cares if you're a little late, right? Think again: that late bill, whether it's a utility bill or the all-powerful credit card bill, can knock down your credit score like a prize-fighting boxer. One late payment can set back your FICO score a whopping 100 points. Once you combine households, married or not, any accounts in both your names will affect both your credit reports.
If you have a partner who is careless with bill paying, sit down monthly to go over your budget. Sometimes, it may be better to accept that one of you is better with money than the other - and that's okay. Consider setting up a household account for joint bills and having the more money-savvy of you two pay the bills. You should still talk periodically to go over your financial goals to make sure you're on the same path together when it comes to money.
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- No Credit
Maybe your partner is at the other end of the spectrum: he or she has no debt, but doesn't have much of a credit history either. Avoiding debt is honorable, but it's important to build a credit history by paying off accounts on time - and credit cards are a part of that. Your partner's lack of history will reflect on your credit score if you combine accounts, so look for ways you can build his or her credit report and FICO score. Consider adding your partner to your accounts; just expect this process of building credit to take a while. (Learn more in 4 Things That Are Easier With A Credit Card.)
- Overusing Plastic
If you've been dating a while before moving in or getting married, think back: was your partner always pulling out plastic to pay for things? Just as avoiding credit cards is bad, so is overuse of plastic. Aim to keep your usage below 20% of your limit - so if you have a $5,000 credit line, keep your balance below $1,000. Pay off the balance monthly whenever possible; no one wants to pay interest on that steak dinner you had back in July. If your partner is quick to pull out the plastic, make sure you sit down together to look at the bill each month.
- Not Checking Credit Reports
Mistakes happen, and often they'll show up on your credit report. When was the last time your partner checked his or hers? Don't wait until you're ready to apply for a loan to check your report, because it can take a while to correct any errors that show up. You can get a free credit report annually - make sure you know what's on yours and your partner's too. (To learn more, see Consumer Credit Report: What's On It.)
The Bottom Line
Your partner's financial habits can ruin your credit if you're not careful, affecting loan rates, job applications and your financial future. Once you're ready to combine finances, sit down and plan your financial future together - for the sake of your relationship. That pickup line sounds really unromantic, but asking to see your partner's credit report may be the best thing you can do to make sure you live happily ever after.
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