Imagine this scenario: Over a wonderful dinner, you and your sweetheart have discussed the future, what you each want out of life, your dream house, the possibility of a family, and everything seems to be pointing to your happiness. Then the love of your life graciously offers to pick up the tab, hands over a credit card -- and the card isn't accepted. And then a second credit card gets the same response. Oops. Should warning bells go off? Or at least a caution light?
I've always believed that finance and romance should go hand-in-hand and that couples need to be as open and honest about their financial feelings as they are about everything else. In fact, a study released last summer by researchers at the Brookings Institution, the Federal Reserve Board and UCLA narrows the financial focus for couples down to a very quantifiable number: your credit score. The study proposes that matching high credit scores can indicate not only financial compatibility but also a strong romantic match.
So as Valentine's Day approaches, I thought I'd give my readers' love lives a potential boost by talking about the best way to boost their credit scores. Because if there's one thing that can dampen the romance in a relationship, it's not being able to get that loan or that mortgage--or even that perfect job--due to lousy credit.
Five steps to better credit
Before we get into how to build a better credit score, let's talk about why it's important. Your credit score isn't just about your ability to borrow money. It can affect many aspects of your life. Some companies use credit scores in making hiring decisions, landlords can use credit scores to screen rental applicants, and some insurance companies use your credit score to help determine your premium.
Plus, negative credit information generally stays on your credit report for seven years, so mishandling credit today can haunt you for years to come.
What can you do now? If you don't know your current score, you can purchase it from one of the three major credit bureaus (Equifax, Experian, or TransUnion). Or better yet, some credit card issuers will provide credit scores for free, so be sure to check with your provider first. To put things in perspective, the top score is 850; the median is 725; and 760 or higher will typically qualify you for the best deals. Then, whatever your score, take these steps to keep it as high as possible:
- Pay your bills on time--Paying your bills on time and in full where possible is the best thing you can do. This alone accounts for about 35 percent of your score.
Why couples should talk about this
I believe the way people handle money says a lot about them. It can indicate a sense of responsibility or lack of one. It can suggest how trustworthy a person is. And it can reveal attitudes about planning and working toward a goal. Ultimately, how you handle money reflects your values.
All of these things are relative and difficult to quantify, but a credit score is pretty tangible. Of course, your score can be affected by things out of your control. For instance, if you lose your job, you may end up being late on your bills. But if one partner in a relationship can't handle debt, consistently runs up bills he or she can't pay, or regularly falls behind on everyday financial obligations resulting in a low credit score, that can be a harbinger of future financial problems -- and perhaps future relationship problems as well.
Making a good financial match
So if Valentine's Day has you lovingly planning your future together, make sure you're also financially compatible. Talk about your finances and your individual expectations. Lay it all out on the table: what you own, what you owe, your individual and mutual financial goals, and how you'll share every-day and long-term financial responsibilities. Get your personal credit scores. If one of you has a lower score, talk about why, what this means, and how you can work together to raise it.
Whether it's saving, paying off debt, buying a house or paying for a child's education, today's perfect romance will be affected by the future financial issues of having a life together--for better or worse. You can make it better by talking about these issues now, boosting your individual credit scores, and perhaps, at the same time, increasing your chances for a long and happy relationship.
Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."
This article originally appeared on Schwab.com. You can e-mail Carrie at email@example.com, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Asset allocation and diversification cannot ensure a profit or eliminate the risk of investment losses. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. Diversification cannot ensure a profit or eliminate the risk of investment losses.
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