Building Credit For My Family

According to CreditCards.com, many marriages or unions often include one partner with a stellar credit score and another with a troubled or nonexistent track record of managing credit. This also can be partially extended to children who are hitting adult age and are entering the nascent stages of building credit.

If just one spouse or partner has a good credit score and the relationship suddenly ends, the other may be unable to qualify for most types of credit — or have to pay dearly for it. There are costs to not accessing credit, or making mistakes such as a missed payment or a maxed-out card. Many financial experts contend that good credit can increase buying power with access to lower interest rates.

FICO scores are widely used to generate an individual’s credit report. FICO cites five determining factors in the scoring model: 1) payment history; 2) amounts owed; 3) length of credit history; 4) credit mix in use; and 5) new credit.

How can those be applied to build a credit score for a spouse, partner or near-adult-age children?

1. Add your spouse or partner as an authorized user to your card

If you add your significant other as an authorized user to a card you own, he or she will inherit the payment history. It’s a nearly instant way to help beef up a thin credit file or recover from past credit missteps.

2. Help your spouse, partner or child apply for a small loan

A small personal loan with a low interest rate can be a great way to establish credit or improve your credit score — as long as you pay on time, every time. Credit unions like RBFCU also offer Credit Builder Loans that are easy to manage and help start or re-establish credit history.

3. Ask your spouse or partner to apply for a secured credit card

A secured card, or prepaid card, can be a useful credit-building option because you don’t need good credit to qualify. You put up a cash deposit that establishes your credit limit. Some secured card issuers allow you to “graduate” to one of their unsecured cards after several months of on-time payments.

4. Review your credit reports together

Every consumer is entitled to a free credit report per year from each of the three major bureaus — Equifax, Experian and TransUnion. It can be obtained at AnnualCreditReport.com. If you believe there are errors in a credit report, file a dispute. Once the error is removed, any credit score points that may have been lost due to the mistake should soon be restored.

5. Have a frank discussion about managing money

Be careful: Discussing finances in a confrontational or accusatory manner can make the other spouse, partner or a teenage child feel as though he or she is being scolded for poor money habits. This can lead to an argument. Finding a third party or financial counselor can help. Keep a goal in mind, just as you would when you set an accountability partner to lose weight or get in better shape.

Remember the purpose: Family life is full of big expenses that can be more affordable and achievable if everyone is able to wield high credit scores in front of lenders.

Information in this article is general in nature and for your consideration, not as financial advice. Please contact your own financial professionals regarding your specific needs before taking any action based upon this information.