Your Life Stage and Your Borrowing

March 1, 2009

Managing your credit can be a dicey proposition even when your life is calm. Add a couple of drastic changes — like relocating to another state, getting married, even watching your child become a teenager — and your credit is one of the first places the damage will show.

Here are some ideas on what you should do when you’re faced with a major change in your life

Getting Married
If you’re engaged, you may find it easier to talk about sex than finances with your future spouse, especially if one of you has a spotty credit record. Before you say “I do,” you should come clean about your individual finances with each other — savings, investments, salaries, real estate, especially credit. As long as you keep your accounts and loans separate, you won’t have a problem.

However, once you start to apply for credit in both your names, and open joint accounts, a partner’s bad credit will affect you. And in order to qualify for a mortgage you’ll probably need both incomes. In addition, your new joint accounts will appear on both spouses’ credit ratings in the future, so it’s a great excuse for the more conscientious partner to assume bill-paying responsibilities.

Getting Divorced
Breaking up is hard to do, especially when it involves joint credit accounts. Basically, you’re both responsible for debt incurred during the marriage. If one of you defaults, creditors will pursue both. First, apply for credit in your own name before closing any joint credit cards or loans. Next, close all joint accounts and ask your lawyer to draft an agreement between you and your spouse that splits the debt. Although this is usually part of a final divorce agreement, can some divorce proceedings drag on for months or years. It’s in your best interest to try and settle credit and debt disputes as soon as possible.

Having a Baby
You can read all the child-care books in the world, but none of them will prepare you for the damage that little tyke will cause to your credit cards. Despite getting bombarded with gifts from friends and relatives, you’re at risk for contracting new baby-itis, and may feel the urge to charge everything from designer overalls to platinum sippy cups with nary a thought to your finances. “But she/he’s only a baby for a short time” is a great justification as long you can pay those bills off before college.

Since becoming a parent can make you throw caution to the wind, the best solution is to pay off as much debt — especially credit cards — as possible before the baby arrives. One study found the average family spends $10,240 more than usual during the first year of a baby’s life. And because one of you may cut back on work once baby arrives, your household income may be reduced for awhile, making it even smarter to decrease your overall debt.

When you move to another state or part of the country, your finances frequently take longer to catch up with you than you would like. When you open a new bank account, for instance, the bank may place greater restrictions on you than on its long-time customers. This may mean limited access to your money for a week or two, in which case you could find yourself lacking bare necessities in your new home, and with no cash to buy them. Make sure you have enough space left on one of your credit cards to provide you with living expenses for two weeks, and then pay off the balance as soon as you’re settled.

When You Leave a Job
If you’re going to be between jobs for any length of time, the time to arrange for a new home equity loan or financing for a new car is while you’re still employed. Lenders are reluctant to lend you money if you’re without a job. And if you’re planning on quitting your job to start a new business, it’s best to line up the credit you’ll need while you’re still employed by someone else. You could have a stellar business plan buy your bank may still reject your loan or line of credit until your business shows income. You may have a nest egg to live on and financing for your startup costs, but bankers still prefer to see a monthly revenue stream.

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