This is a two part series. Look for next month’s How To Date Someone When THEIR Credit is Bad
When YOUR credit is less than stellar and you’re dating someone who has their financial house in order, it doesn’t come into play until you realize things might be getting serious and your finances might affect each other.
The conversation of credit scores should inevitably be discussed. BUT… One problem.
You would rather do almost anything than discuss your credit score with anyone. Especially someone with whom you’ve been showing up as your best self.
The thing is – you’re not alone. You’re not the first person to have had bad credit, nor the first person to hesitate to break the news to your new boyfriend or girlfriend.
In my work in credit repair company, and I see a lot of people looking to boost their scores for this very reason. One client opened up about her embarrassment about her credit situation, and she had so much shame that I literally held her hand while we pulled her credit report. Her story was not unusual: she had been a Realtor in 2008 when the economy crashed, and – like many, her income dried up overnight. Her savings quickly vanished, and she was forced into a short sale on her house and gave her cars back to the bank. She also had a loan for some business equipment and credit cards that had gone to collections.
When she and I worked together on her credit repair, she was on the verge of marrying a successful franchise owner of a national restaurant chain. The franchisor wouldn’t allow her fiance to open up any new locations if his spouse’s credit was bad, so they had actually delayed their wedding for two years.
Despite the understanding and support from her partner, she still felt enormous guilt and shame, and felt like a liability to him.
The good news for her is she is a perfect candidate for credit repair because she’s got negative items that can be negotiated and deleted (vs people who just have large credit card debt), and we’ve been able to take her from the 500’s to almost 700 in about 60 days.
Thankfully, there are things you can do to improve your credit score and/or deal with your debt load, and ways you can broach the topic when your relationship warrants it. The most important thing is not to let credit be the cause of the negative talk we can sometimes have about ourselves, and instead do something about it.
Here are some steps to navigate life when YOUR credit or debt is worse than your partner’s:
- Fess up. But first… Start by pulling your credit report (even if you need a friend to hold your hand), and see what’s really going on. When the time comes to talk to your partner, know the situation that you’ll be presenting them with so that you can be practical and constructive. (And, maybe it’s not actually as bad as the shame and loathing monsters make it feel like it is.)
- Whatever your credit report shows, know your options to reduce your debt.a) If your debt load is something you can chip away at and pay down by being more frugal in your day to day life, and/or by earning some extra money, then that’s an ideal action to take.b) Another route is to get a debt consolidation loan, where you borrow a lump sum to pay off all your credit cards, and then you only make the payments on that loan. This is helpful if the interest rates on some of your debt is very high.
c) However, If you’ve got a pile of credit card debt and you can’t fathom a way to pay it down, consider a strategic default. This means you stop paying your credit cards, save as much cash as possible, and settle with the credit card company for a reduced amount (usually around 30% of the balance on your account). Doing this does mean that all your credit card accounts get closed, and your credit score takes a hit, BUT you shed the debt, and the associated weight on your shoulders, and then get back to rebuilding your credit. Creditors are typically amenable to this because when you start to default, they see you as pre-bankruptcy, and since they aren’t going to get anything in bankruptcy, they would rather take a settlement.
In my experience, it makes sense to settle when you can at least pay some of the debt, even if you go on a year long payment plan. Bankruptcy makes the most sense when there is no way you can reasonably pay off your debt with what you’re making now or in the next couple of years.
- Credit repair presents some options as well. If you’ve just got high credit card debt, unless you have defaulted, credit repair can’t help you. But if you’ve got things that can be negotiated, like late payments, anything in collections, accounts assigned to your ex in a divorce decree, identity theft or that sort of thing, then credit repair is worth considering.
- Whatever your choice is, get your partner on board and explain how they can support you. Say it like this “honey (or your own term of endearment), when I was in my twenties/got divorced/got sick, my credit took some hits. I’m in the process of getting out of debt now and repairing my credit, and I’m going all in for my/our financial future. I’m not going to be able to go out as much, but I would love to have you over more for dinners in, walks in the park, free museum nights, etc”.
- If your partner offers to help, don’t automatically say no because you want to be independent and show them how tough you are. If they are in a position to pay for more dinners, or trips, accept their generosity with gratitude. I once lived with a boyfriend who made good money and preferred me to not pay anything like rent or utilities, but just wanted me to pay my cards off. His reasoning is that if we got married (and we didn’t) that we would both be applying for a mortgage together and it was worth it to help me out now.
- If someone offers to pay all your cards off, do some deep soul searching about what kind of strings might come with it, and get it in writing, even if it’s that there are no strings. Keep it as a business deal.Tip: If you want the best credit score, pay the credit cards down over time, rather than all at once. If you’ve been making minimum payments for months, and then suddenly pay everything off, you don’t look responsible with how you use credit and most likely your credit limits will be lowered, which hurts your score.
- Ensure that you have positive pay history every month. If you’re still paying down credit cards, this will be no problem, but if you want the best credit score, don’t just quit using your cards (i.e. going 100% cash). If you’re learning to trust yourself with credit, I’d recommend that you put something small and regular on your credit cards, like utilities that don’t fluctuate and are predictable. This will show positive pay history at the credit bureau, which will positively impact your credit score. From what I’ve seen with my clients, the difference between having a card with positive pay history that you’re paying off every month vs not using credit whatsoever can be 120 points.
- If your sweetie offers to add you on to a card as an authorized user, choose a card that has perfect pay history and has charges on it every month and is paid off so you get positive pay history. If their card has any missed payments or if it’s being over the recommended limits, it would hurt your credit score. An alternative to this would be if you were an authorized user on someone’s card, but don’t actually physically have a card. Just be sure to review the charges and payments together so no one gets a nasty surprise.
- Lastly, the best credit scores have usage under 30%. For example, if you have a $1000 credit limit on a credit card, keep your balance under $300 at any point in the month (even if you pay off the card each month). If you’re imminently applying for a mortgage, keep your usage under 10%. The people I know with scores over 800 use less than 5% of their total credit a month.
A version of this was first published on Daily Worth.