Dating Someone with Bad Credit? Here’s How to Protect Your Score

These tips can help ensure their bad credit doesn't indirectly affect yours.

Building a strong credit score can take years of paying your bills on time, spending wisely and avoiding too much debt. If you’ve spent a lot of time and effort building a great credit score, you may be very protective of your credit.

But if you’re in a relationship with someone who has poor credit and you’re at a point that you’re moving in together or otherwise sharing expenses, your credit score could be in jeopardy. Not because your Valentine’s bad credit will directly impact yours: Credit reports don’t get merged, even after you’re married. But a person’s poor money habits can have an indirect effect of your financial standing and any joint accounts you decide to sign up for will appear on your credit file.

In other words, if your beloved has bad credit, you’ll want to take steps to avoid damaging your own. Here’s how you can safeguard your credit score from your partner’s bad credit.

1. Consider Keeping Your Funds Separate …

There are a number of reasons your partner could have poor credit, including unexpected financial hardship or identity theft.

“Someone with a low credit score could still be responsible with money and pay all the bills on time, but may just have some unexpected medical debt,” says Matt Gulbransen, owner of Callahan Financial Planning Corporation. But your partner could also have poor money-management skills. And, if that’s the reason for their credit score woes, you may want to keep your bank accounts separate for awhile. You can still split expenses while restricting access to your personal bank account.

2. … the Same Goes for Other Accounts

You can apply the same strategy to other accounts, including credit cards, loans and any accounts with monthly payments. Missed payments on shared accounts will inflict mutual damage to both of your credit scores. Your partner’s poor credit could be due to a history of late payments or accounts in collections, so think twice before sharing. (And, if you do decide to share, keep a close eye on those accounts.)

“I suggest you don’t join credit cards until you build the credit of the other party,” says Gulbransen.

It’s also risky to co-sign a loan, which can have the same impact on your credit as sharing a joint account.

3. Avoid Applying for Credit Together

If you want to apply for a credit card or loan, you may be better off doing so independently. If you apply together, your partner’s poor credit could result in higher interest rates, poor loan terms or even an outright rejection. You should use your own good credit to negotiate the best terms.

“Banks remain wary of making loans to borrowers with tarnished scores,” says Gulbransen. “And low scores can deny one access to a mortgage.”

Even adding your partner as an authorized user on your credit cards can be risky if your partner runs up your credit card balances. That’s because the amount of debt you owe can directly impact your credit scores. (Plus, the primary accountholder is the one responsible for actually paying the bills.)

4. Work on a Credit Improvement Plan

Poor credit doesn’t have to doom a relationship. It can be challenging, but you can help your partner by understanding their situation and working together to create a credit improvement plan.

If you’re both committed to the relationship, you may want to merge finances and share financial decisions in the future. The best way forward is to openly discuss what led to your partner’s poor credit, and come up with a plan to improve it together.

The details of the plan will depend on the factors contributing to your partner’s poor credit score. Improving their credit score for your partner could require monitoring his or her credit report, building a solid history of timely payments and paying down debt. There are also a number of tools, such as secured credit cards that are ideal for people who have struggled with managing their credit. And, if your beloved discovers their credit is being affected by a boatload of errors, credit repair could be an option.

Bottomline: By working to improve your partner’s credit, you can both move toward a greater financial future together.

Image: g-stockstudio

The post Dating Someone with Bad Credit? Here’s How to Protect Your Score appeared first on Credit.com.

My Spouse Went on a Spending Spree With Our Credit Cards. What Can I Do?

It can be difficult for married couples to manage their money together, especially if they are not always on the same page. In particular, credit cards can make it easy for one person to overspend using money that the household might not have in its budget. If you’ve had a situation where your spouse has spent too much on your credit cards, what can you do?

Talking About It

Having discovered that your spouse has been spending heavily on your credit cards, the first thing that you will want to consider is talking about it. It’s a good idea to start by giving your spouse the benefit of the doubt, simply asking for more information about the charges.

For example, a credit card statement might offer vague or misleading information about the name of the merchant, so it can be very easy to confuse a large charge that you were expecting with one that you weren’t. In addition, it’s always possible that what appears to be a spending spree might actually be the result of fraudulent charges, which you can dispute with your card issuer.

Thankfully, federal law protects credit card users from paying more than $50 in the event of a fraudulent charge, and all major card issuers will waive this amount by offering zero-liability policies. By sitting down together and going over each charge, couples can ensure that they understand exactly what was purchased and what wasn’t.

If you’ve determined the charges are legitimate, you’ll want to consider going over your total financial picture to see how these charges will affect you. And if you’re unable to pay your entire statement balance by the due date, you should also try to calculate the cost of interest charges.

Taking Steps to Minimize the Impact

Once you have talked it over, it may become apparent to both of you that your spouse overspent. The most effective way to minimize these expenses is to look into returning some unnecessary purchases. In fact, many credit cards come with a return protection policy that can offer you a refund on eligible purchases, even when the retailer won’t accept a return.

After you’ve returned everything you can, your next step will be to minimize any interest charges. You can avoid all interest charges by paying your balance in full, but if that’s not possible, then there are other steps that you can take. For example, you can pay as much as possible, as soon as possible, in order to reduce your average daily balance, which determines how much interest you are charged. You can even save money on interest charges by making multiple payments each month, as money becomes available. You also can cut back on other spending as you apply more of your monthly budget to paying off the debt.

Another strategy to minimize your credit card interest is to open a new account that offers 0% APR promotional financing on balances transfers. These offers allow you to avoid interest charges by transferring balances from your existing cards to a new credit card that offers interest-free financing. These promotional financing offers last from as little as six months to as long as a year or more, however, nearly all of these offers require payment of a balance transfer fee of 3 to 5%, which gets added to your new balance.

Preventing It From Happening Again

Once you’ve tried to manage your existing charges, you can take steps to ensure neither of you overspend with credit cards in the future. For example, some couples agree to notify each other before making any charges above a certain amount, such as $100. In many cases, you can manage your credit card accounts online and create automated alerts that send both of you an email or a text message when any charge above a certain amount is made, or when your balance crosses a predetermined threshold.

Finally, some couples may choose to separate their finances rather than manage their accounts jointly. This allows you to avoid financial problems caused by your spouse’s overspending, but it can also make it more difficult to work together to budget your money and control overspending.

It’s often said that communication is the key to any successful relationship, and this advice is especially true when it comes to married couples managing their finances together. By talking about your credit card use, and taking steps to mitigate and prevent overspending, couples can work to manage their credit card accounts responsibly.

Remember, carrying high credit card balances can have a negative effect on your credit scores. You can see how your credit card spending is impacting your credit by checking your two free credit scores, updated monthly, on Credit.com.

Image: Drazen Lovric

The post My Spouse Went on a Spending Spree With Our Credit Cards. What Can I Do? appeared first on Credit.com.