How to Protect Your Credit
The days of marrying into a financially stable relationship have come and gone. Finding a man or woman with a high credit rating is like finding a tiger in your backyard – it could happen, but it’s very unlikely. For instance, 86% of newlyweds (and those planning to get married within the year) plan to discuss finances before saying “I do”. How important is it to have the debt talk and to discuss how to protect your credit when considering tying the knot? Let’s review what happens when you marry someone who is drowning in it.
It seems everyone affected by the 2008 economic downturn included the middle class. But this shouldn’t kill the idea of marriage. Just do what thousands of other married couples are doing for credit protection.
You’re Not Responsible for Past Debt
The good news includes the debt your spouse had before the two of you tied the knot isn’t your responsibility. This is true even if you decide to joint bank accounts. Most of the time, your debt and credit rating are separate.
Of course, you need to check just to make sure. Word is that community property states may differ in their rules.
But it Could Become Your Responsibility
Before you jump up for joy, keep reading. There are mistakes you can make that could put you in the hot seat with creditors. For example, adding your name to your spouse’s credit cards.
The same goes if you choose to refinance a mortgage or car loan with both of your names. Debt consolidation is a great way to get out of debt. But if your name is on that consolidation loan with your spouse, then you’ve made yourself 50% responsible for it.
What About When You Divorce?
Financial troubles are one of the top reasons couples seek divorce. In fact, one survey shows that 39% of divorced participants labeled finances as the primary conflict in their marriage. That’s one more reason to discuss ways on how to protect your credit and take action with credit protection strategies before exchanging wedding bands.
In the event you do split, the debt your spouse had before the marriage goes with them. That goes for the debts that don’t have your name attached. The debts with your name on it and that took place during your marriage will be partly your responsibility.
Death can nullify a marriage, but it won’t do much for past debts. All that happens next is the debt is passed along to the next living relative. Whatever loans you co-signed for will be up to you to repay.
However, depending on the state you live in, community property law may not be practiced. This means you won’t be responsible for debts you didn’t benefit from. So that vacation or hobby your spouse borrowed money for wouldn’t count in this matter.
The arrangement of your divorce is also crucial. The two of you can agree to offset debt obligations by allowing the other to have a greater portion of the assets to pay for it down. Certain debts can also be assigned to each partner.
And Til Death Do Us Part?
Whatever your name isn’t on, your spouse’s estate will cover. But whatever is left over could be passed along to you. This scenario makes life insurance policies a must-have.
What You Can Do for Credit Protection
There isn’t a way out of marrying into debt. Not even marrying an older (supposedly more established) individual can safeguard you. Not with older folks carrying more credit card debt than younger generations.
Talk About Your Financial Past
In the event you end up marrying into debt, there are ways to protect your financial well-being. You’ve already done the first part – learn what debts you’ll be responsible for. Have the talk with your future spouse before marriage to know what you’re getting yourself into.
Wait a Little Longer
Next, you should consider playing the waiting game. If your mate’s debts are that bad, it may be wise to wait until the debts have been paid down a bit. If you can’t wait to be with your beau, then forego getting joint accounts.
Plan Your Future Purchases
It’s important to know how you will handle making major buying decisions. Such as purchasing a home or vehicle, or taking out loans for education, debt consolidation, credit protection, and so on. There are several ways you can handle making these financial obligations.
Apply for Credit Separately
For starters, you can avoid applying for credit together. If you’re the one with great credit, and you feel you can handle the payments together, then put it in your name. You’ll have a higher chance of approval and a lower APR.
The risk with this option is if your spouse divorces you or passes away, that debt falls on your shoulders. Also, be careful about adding just your spouse’s name to the loan. This will give them property rights without the debt obligation.
So if they ride off with the car after the divorce, good luck getting it back! Meanwhile, you’re stuck making the payments for it or risk blemishing your great credit.
Co-Sign Your Spouses Loans
You want to be a great spouse, which may mean co-signing a loan to help them further their education. It’s common for one spouse to return to school later in life. While this is a great gesture, prepare for the possible fallout from a divorce or economic downturn.
Add Your Spouse as a Joint Account Holder
What’s clever about this, is that the joint holder’s responsible for the balance. Adding your spouse also won’t hurt your credit rating (unless they decide to use up your available credit). Thirty percent of your credit rating depends upon how much credit you’re using.
Another option on how to protect your credit is to add your spouse as an authorized account user. This won’t affect your credit report, but your spouse is not liable for their payments.
Learn More About Saving Your Credit
Empower yourself with the knowledge needed for credit protection and building. This is the goal of Credit Squared – to offer actionable tips for improving your financial situation. Now is always the best time to start and begin to learn how to protect your credit.
Your credit is your future – without it, becoming financially stable will be impossible. You can begin your credit building and improvement today. Visit Credit Squared to learn ways to enhance your purchasing power!
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