Student loans and bad credit scores are a serious reason for concern when dating, but once you tie the knot your finances are intertwined with your spouse whether you like it or now. Now that you’re past credit score dating, it is time for a grown-up and frank talk about your credit with your spouse.
While talking about money and credit can be awkward at first, it is an important step in solidifying your financial future and building a strong relationship with a shared understanding about money and your finances.
Why talking about credit matters
Your credit score and credit report have a massive impact on your personal finances. The difference between a good and bad credit score might be the deciding factor on being able to buy a home, qualifying for the best interest rates, and opening up new credit cards with lucrative bonuses and rewards programs.
If your credit score misses the prime mark, you could find yourself paying a percent or more higher on a mortgage, for example, if you qualify for one at all. On a $100,000, 30-year fixed loan, a 2% increase in interest rates leads to a payment of $107 more per month and a total cost of $38,807 more over the life of the loan.
Because your credit score can save you tens of thousands of dollars, if not more, on a home loan and other borrowing, it is important to have an open and honest discussion about your credit, your spouse’s credit, and your shared financial goals regularly over the course of your relationship.
Be open and honest about past mistakes
While everyone wants to be perfect with their money, it is rare to find someone with no financial regrets. Mistakes happen, and while you may be embarrassed about them, in a healthy relationship you should feel comfortable and safe sharing your history with your spouse.
Your interactions with credit cards, student loans, auto loans, and other lending projects led to your current credit report and credit score. You can’t go back in time and change the past, but you can look at your credit history and your spouse’s credit history to better understand the root cause of past mistakes and opportunities to improve in the future.
Because you most likely want to live together, your individual and shared past with credit has a big influence on where you live and how you pay for a home. When you get married, you also marry your partner’s debt in some cases, so their credit score greatly affects you too!
You are on a life journey together, and that involves money. Even if you didn’t openly discuss money and finances growing up in your household, this is time time to build that open line of communication vital to relationship success.
Agree on future credit goals
While you can’t go back and change the past, you can commit to taking the right steps with credit going forward. If you work together on your finances, it is much easier to reach your shared goals and join the 800+ credit score club.
Here are some ideas for a new family finance plan for you and your special someone:
- Perfect on-time payment history – From today forward, never miss a due date. Paying your credit and loan bills on-time is the number one factor in your credit score. Even if you have a string of late and missed payments in the past, commit to paying on-time or early from this day forward.
- Pay off credit cards – Credit card and other debt balances are another major factor in your credit score. Even more, credit cards often charge high interest rates that makes keeping credit card balances very expensive. Pay those off to both save money every month and improve your credit score.
- Pay off student loans and other debts – Student loans, auto loans, and other debts should be your next target after paying off your credit cards. Unless a loan charges 0% APR, it costs you money every month. Stop paying interest by paying off all of your debt for good.
- Save for a down payment – If you and your spouse dream of owning a home, your next priority should be saving a down payment. If you have a poor credit history, it may be impossible to get approval for a large loan. The more you can save for a down payment, the better your odds for loan approval. Aim to save a minimum 20% of the cost of your future home. When I bought my current home with my wife, we put over 40% down to make the loan affordable.
- Expand your credit and money knowledge – While you both work to raise your credit scores and pay off your debts, it is a good opportunity to simultaneously improve your personal finance IQ. Joining forces to learn more about money is a good thing! Start by subscribing to our newsletter if you have not already, then consider picking up a popular personal finance book, subscribing to money podcasts, or taking an online course to take it a step further.
- Weekly or monthly family money meetings – Now that you have a shared financial vision and are on track to get there, make sure to check-in with your spouse regularly to ensure you stay on the same page and focused on your shared money goals.
Work together for shared credit success
Getting ahead with money is impossible if you are married and don’t work together. It takes a dedicated and unified effort to fix your credit scores, pay off debts, build savings, and reach the financial stability that alludes so many families.
There is no secret that money disagreements are a common factor in divorce. Don’t become a statistic. Instead, work together, communicate openly, and and you will soon find yourself on a path to personal finance success.