On the road of life, we all travel different paths, at different paces, and at different times. However, the one thing we have in common are similar experiences that shape our life long journey with credit and how certain life events can influence our finances and change ourcredit scores.
Here are six situations:
The “I Do” Factor
Before you get married, you and your partner should reveal and discuss your relationship with your finances. Even though you will continue to have separate credit reports when you become one, your individual credit health can affect your ability to borrow money or share credit as a couple. Take time to review your credit reports together and have a heart-to-heart talk about where each of you stands and how you will approach credit once married, especially if you plan to merge credit accounts. When you link accounts, both you and your spouse will be responsible for all the debt you incur on any joint account. That means if either one of you misses a payment on a joint account, it will negatively affect your credit reports and, thus, your credit scores.
The Student Loan Factor
Whether you plan to take out or already have student loan debt, you should know that, like other debt, such as credit cards, student loan debt also affects your credit scores. The amount you owe, your monthly payment, and your payment history are all factored into your credit score calculation. Even though you can seek a student loan deferment (a payment stoppage where no interest accrues on your balance), or a forbearance (a stoppage that includes the accrual of interest on your balance), you will still be responsible for repaying the loan. Defaulting on a federal student loan guaranteed by the government will result in a negative government claim on your credit report. If the loan is private, it will be sent to a collection agency. Derogatory credit report items indicate serious delinquency or late payments and impact your credit score and your ability to obtain new credit.
The Parent Factor
The decision to have, adopt, or foster a child is serious and can have a lasting impact on your wallet and your credit. Along with the pride and joy that parenthood brings, raising children comes with an expensive price tag. Planning your financial game plan ahead of time can help you manage the impact on your finances. Taking time to create a budget, increase your emergency savings of at least six months of living expenses are two ways to start. It’s also never too early to start saving for college, so look into saving plans such as the 529, which lets you stash and withdraw money tax-free for education purposes. Finally, check into the benefits your job offers to help you manage your parenting obligations, such as Flexible Savings Accounts that let you save pre-tax dollars for medical expenses, 401K plans, and life insurance.
The Job Factor
If you’re unemployed and managing your finances and credit obligations in the meantime, this will affect your credit score. You should also know that employers may, with your permission, check your credit report before extending a job offer, so being aware of what’s in your credit report is essential for employment purposes.
The House Factor
Purchasing a home is a dream, and likely the biggest purchase you will ever make. The process requires patience, paperwork, and, of course, payments. Before settling on a decision to pursue homeownership, you need to prepare for how your credit score will withstand the financial change. Borrowing money to buy a home often means that lenders will request a copy of your credit report from at least one of the three major credit bureaus. This ‘hard inquiry’ will show on your credit report and can cause your score to drop in the months following your approval. But don’t worry, as long as you pay your mortgage and other debts as agreed, your score will recover quickly.
The Car Factor
Buying a car can help you establish healthy credit as long as you pay the debt as agreed. When adding a car payment to your financial life, you should first decide how much car you can afford and whether to lease or buy (finance) it. Leasing a car typically requires a smaller down payment, lower monthly payments, and less repair costs. Lease terms vary and depend on a combination of factors, including your creditworthiness and income. On the other hand, buying will give you the pride of ownership, provide you with equity to put toward your next car, and provide savings over the long term. Your credit score determines if you will get a loan and how much interest you’ll be charged, so evaluate your credit situation and your credit score before making a decision.
There’s no way to predict what the future holds, but you can do your best to plan for it a better tomorrow. For more free information on credit scores, click here.