Credit must-knows for life’s major milestones
By Dawn Papandrea
June 16, 2016
Good credit habits are important throughout the course of your life, but perhaps more so during major milestones.
By learning how to leverage credit from college through retirement, you can reap financial rewards and opportunities. Here’s how:
Getting through college
While you might think putting off getting a credit card will keep you out of debt, that won’t help you build your credit, says Rachel Jimenez, personal finance and business strategist and founder of TalkRaw.org.
“As a student, within five years or so, you’ll want to move out on your own, or buy a car, or get furniture. Those things require you to have good credit,” she says. If you wait to start using credit until you’re 25, you’ll have difficulty being approved for an apartment, an auto loan, or maybe even getting a job.
Sign up for a credit card when you turn 18, use it carefully, and pay the bill in full every month on time, says Jimenez. “This will help you build up your credit history and credit score,” she says.
If you have no source of income, it could be tough to qualify for a credit card. Some issuers have student cards with less stringent qualifications, or you can start off with a secured card.
“Getting a secured card is going to be the way to go for some,” says Ken Strauss, CPA/PFS, and member of the AICPA’s National CPA Financial Literacy Commission.
“As a student, within five years or so, you’ll want to move out on your own, or buy a car, or get furniture. Those things require you to have good credit.”
— Rachel Jimenez,
founder of TalkRaw.org
Secured cards require you to deposit money in an account, say $500, and that represents the amount of your credit limit. Some also have fees and unfavorable terms. But with regular, on-time payments, you can graduate to an unsecured card in 12-18 months or so.
Falling in love
Joining finances with another person can have big implications on your credit. Before you tie the knot, or even just share a home with a partner, it’s a good idea to know the other person’s credit and financial situation.
“You might not want to start talking about money on a first date, but bring it up early,” says Jimenez. Motivating each other to get out of debt and tackle credit issues can help you start off on the right foot.
“I’m a big believer in having separate credit,” says Strauss. In the best case scenario, both people sharing a credit account are responsible credit users and they stay together forever, but that’s not always the case.
“When things get rocky in a marriage, the first thing a vindictive spouse might do is run out and charge up a whole bunch of stuff,” he says.
If you open a joint account, understand that each person is on the hook for what the other does, and payment activity will affect both credit scores, says Strauss.
In some cases, a spouse with poor credit can piggyback on the other’s account through an authorized user arrangement. Responsible management of such an account will improve the credit score of the spouse who’s struggling.
Another benefit of a shared account? Two people spending increases the couple’s points, miles or cash back.
Becoming a homeowner
Perhaps no other time in life gets people in tune to where they stand credit-wise than when they’re in the market to buy a home.
“Lenders look at your credit history, how timely you are in making your payments, and what your debt load is compared to your availability of credit. The better your credit score, the lower your interest rate,” says Strauss.
Get your credit in shape before buying a home. Review your credit report at least a few months before you start home shopping, says Jimenez. “If you see anything off or weird, call up and figure out what’s going on, and work with the credit bureaus to get negative items removed,” she says.
If you are carrying debt and have a little money to pay it off, doing so can give your credit score a boost.
“Lenders look at your credit history, how timely you are in making your payments, and what your debt load is compared to your availability of credit. The better your credit score, the lower your interest rate.”
AICPA’s National CPA
Financial Literacy Commission
Also, don’t sign up for a new credit card, buy a new car, or finance furniture right before you apply for a mortgage, says Jimenez. Hard inquiries ding your credit score, and mortgage lenders will be turned off if you’re charging a bunch of things before you plan to take out a home loan.
Having a baby
BabyCenter’s 2015 Cost of Raising a Child survey found that 46 percent of parents say they’ve gone into some debt bringing up baby. Planning ahead can help new parents avoid having to rely on plastic to cover the unexpected costs.
From the loss of income during maternity leave to paying for child care, research the cost of having a baby, and create a new budget around that, says Jimenez. This includes thinking through how you would handle delivery complications that require longer hospital stays, she says. What does your insurance cover? Do you have adequate savings to get you through?
New parents might benefit from switching credit cards.
For instance, some credit cards offer great cash back rewards for grocery spending (those diapers do add up!), while other co-branded cards can provide discounts at baby retailers may be frequenting.
Looking toward retirement
A recent TransUnion survey found that nearly half of baby boomers aged 51-70 believe their credit score matters less after age 70. However, there really is no retirement age when it comes to credit.
“You might feel rich because you hopefully have a lot of savings, but that has to get you through the rest of your life,” Jimenez says.
“Watching your credit is part of life,” Strauss says, even more so for retirees, as it’s often easier to become a victim of fraud as we age.
He suggests considering a low cost credit monitoring service, such as those offered by the credit bureaus, that alerts you if someone is trying to open credit using your Social Security number.
Be mindful about managing the lines of credit you do have because you might not be able to get credit increases or new cards as easily if your income drops when you retirement.
Taking care of your finances is a lifelong process and each of these milestones can actually strengthen your credit so you have better options going forward. Strauss says: “If you make credit health a priority from day one, your life will be easier.”
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