The Lifecycle of Credit

It seems odd, but did you know that your credit has a life of its own? Your credit history didn’t instantly spring to life one day—it grows with you over time and changes as you go through different life stages. Here are ways that life events can trigger changes to your credit.

MARRIAGE

Managing your credit can be tricky, even when you’re the only person involved in your financial decisions. When you add a new spouse to the mix, you have to be extra careful to ensure that your credit remains in good standing.

You want to start off your married life together with good communication, because money problems and disagreements are one of the things that drive couples apart. That said; get it all out on the table, literally, including all financial records for savings, salaries, investments, real estate and credit. What if one of you has a less-than-stellar credit rating? It will affect the other as you move forward in your married life, applying for loans jointly. Make a commitment as a couple to pay bills regularly and on time.

Love, honor and cherish—OK. But merging accounts is another thing altogether. Many couples merge accounts because it’s easy for recordkeeping. But keep in mind that both of you are now responsible for all debt incurred in joint credit accounts. One missed payment (>30 days) will affect both of your scores. For this reason, and also to have a backup for emergencies, it’s a good idea to keep one credit card in your name only so that you can re-establish a credit history should the marriage not work out. Women who take their husband’s surname should be sure to notify the Social Security Administration and current creditors of the change.

DIVORCE

Divorce can affect many aspects of your life family, income, and lifestyle—and one you may have not considered—your credit score. Although it doesn’t directly hurt your credit, you’re probably linked to your ex-spouse via your joint credit. Here’s how it can hurt you if you’re not careful:

  • Your ex doesn’t pay joint bills—If you have any joint credit accounts—like mortgage, credit cards, car loans, etc. —someone has to pay them. Even after the judge rules that your ex-spouse is responsible, if your name is also on the loan, you are legally responsible for the loan and to make sure he or she pays the bill. This can be tricky even in the most amicable divorces. What if your ex decides he or she doesn’t want to pay for spite? It happens. Or maybe he or she can’t pay the bills because of a drop in income. The bottom line is that if these bills are in your name, YOUR credit will suffer along with your ex-spouse’s. What should you do? You need to make payments on bills your ex isn’t covering, regardless of who the judge said is responsible for them. You can try to recover the money later by reporting it to the courts.
  • You’re unable to pay your bills—Divorces are expensive, some more than others. And when the ink is dry, you may be left with less income, especially if your spouse was the primary breadwinner. Consider that you may have trouble meeting bills on your own. If you begin to have late payments or high credit usage, both will affect your credit score. Remember that payment history and debt level are the two biggest factors affecting your credit score. The solution: Increase your income or decrease your expenses. Consider cutting back on spending, asking for a raise, taking a second job, freelancing, or even buying and re-selling people’s unwanted yard sale stuff. A good budget should help you see where your money is going.

It is in your best interest to remove your ex from your joint credit as soon as you can. You should refinance, transfer balances, close out accounts, and/or remove your spouse as an authorized user of your accounts. Any doubts? Consider credit monitoring to see if there are late payments with any remaining joint obligations that your ex is responsible for paying.

RETIREMENT

Should you slack on your bills or credit cards now because you already have everything you need, or don’t think you’ll be taking out any more loans? Not advisable, say experts. Your credit score still matters for a variety of reasons.

The actual act of retiring has zero impact on your credit score, and that’s good news. Credit scores are affected by how you manage your liabilities and how much debt you owe—just like you’ve done your whole life. The news gets better: According to the creators of the FICO scoring system, older consumers score higher than younger consumers, with 68% of seniors enjoying scores of 700 and higher, and half of them over 800. (Compared with 30% of 18-29 year olds who scored above 700.)

So, keep your score healthy, and that includes NOT doing any of the following:

  • Closing accounts—This is a bad idea at any age because when you close the account, your debt-to-limit ratio (the relationship between your credit card balances and the limits on your open accounts) automatically goes up, which could in turn affect your credit score.
  • Failure to monitor credit reports regularly—It’s important to protect yourself from errors and identity theft in retirement, both of which have the ability to drop your scores quickly.

A few more reasons to keep your credit score healthy: You may decide to re-enter the workforce part-time after you retire from your full-time job, and most employers will do an employment credit check. Or, you may decide to buy a vacation home and finance some of it. It’s a good idea to check your credit history annually in preparation for retirement.

DEATH OF A SPOUSE

In the event of a death, stabilizing your credit can be difficult, especially if your spouse held all the credit in his or her name. What happens to the surviving spouse’s credit report when he or she dies? By law, a creditor cannot automatically close a joint account. They can, however, ask you to file a new credit application in your own name, at which time they may renew, reduce, or cancel your credit. If you open up a new account, do not use your deceased spouse’s name on any part of the application or it will result in a joint application. As always, it’s important to keep paying your bills and paying them on-time to preserve your credit rating and to stay on top of your obligations.

Resources: Money Talks News, Experian, The Balance, Nerdwallet, Credit Card Insider, AARP