Being a couple often goes hand in hand with the merging of many things, some of which include hearts (of course), living spaces, families, and—for many—finances. Unfortunately, merging finances can be confusing and overwhelming; it's not always a pleasant experience, especially if one or both partners have been struggling with their credit.
Janet Alvarez, personal finance expert at Wise Bread, explains that "while developing and maintaining a strong credit score is a lifelong process, there are some viable actions you can take in the short term to help boost your score quickly." Read on for her expert advice to improve your score and take control of your credit.
Raise Your Limits
While raising your credit limits can be bad news for over-spenders, those looking to boost their scores can benefit in doing so. This is because of something called your "credit utilization ratio." Alvarez explains this as "a measure of the percentage of your available credit being actively used." Essentially: "The more credit you have—and the less of it you use—the better the ratio and your credit score."
Make It Count
Rental payments and rental history can tell an important story about making on-time consecutive payments. Unfortunately, these often go unreported. Alvarez advises using RentReporters, RentTrack, or a similar service that can make sure your payments get reported to credit agencies. She says, "By proactively signing up for one of these services, you can see a boost to your score in the vicinity of 50 points in a few months of on-time payments."
While it may sound counterintuitive, it's important to have a range of credit types within your profile, so taking on new types of credit (like gas or store cards) can help as long as they are used responsibly. "Having a variety of accounts that you pay on time (ranging from mortgages to student loans or credit cards) strengthens your score," explains Alvarez.
Be in the Know
The first step in repairing or improving your credit begins with knowing your score and ensuring it is accurate. Any signs of fraud or identity theft, inaccurate reports, or out-of-date information needs to be remedied. To tackle this, Alvarez says, "Go to annualcreditreport.com to—at minimum—check it for free once a year, and if you want to be especially prudent, consider the free or low-cost credit-monitoring services offered by many credit-card companies in order to diligently track any changes."
Avoid Closing Accounts
Alvarez warns against closing accounts, as it can damage your credit for a few reasons. "First, it reduces your credit utilization ratio, because you now have less credit available to your name. Second, it reduces the average age of your account history, which also lowers your score. The better bet is to simply pay off an existing account and use it only sparingly—and responsibly," she says. Conversely, opening too much new credit can also damage your score and raise some red flags that you might be needing more credit for the wrong reasons. If you find yourself needing some more credit, "The better bet is to ask for credit-line increases on existing accounts," says Alvarez, "or only open new ones judiciously." Too many hard credit inquiries can lower your score.
Stay On Top of Your Loans
Student loans are never fun, but defaulting on them is a huge mistake. If you find yourself in arrears with federal student loans, Alvarez says, "Uncle Sam can garnish your tax refunds or wages and prevent you from taking out any future student loans. It's also a major credit blemish."
Repairing your credit might take some work, but Alvarez explains, "It's not as daunting as it seems. You can repair your credit, and, no, you won't be stuck in credit limbo forever. You just need to get serious about taking action and following through accordingly." She recommends first getting a copy of your credit reports from FreeCreditReport.com to understand exactly where you stand and why. If there are any signs of fraud or inconsistencies, you can immediately contest them and investigate. If you find that your scores are lower because of missed payments, call your creditors and work out a plan to get back in good standing. "Whatever the issue, tackling it head-on will allow you to make forward progress," she says. "If you do nothing, matters will probably just get worse."
Once your credit is repaired, you need to maintain it. Alvarez recommends reflecting on the behaviors and reasons that allowed your credit to deteriorate in the first place. "Almost everyone overspends at some point, so you're not alone if you need to get a handle on your budget," she says. "Try services such as Mint.com or You Need a Budget to track exactly where your money is going and help you commit to budgeting. Don't forget that there are two ways to improve your budget situation: spending less or earning more." In a perfect world, you should be doing both.
Then, begin employing the above-mentioned skills to raise your score, and don't look back.