Protect yourself with credit
In light up of the upcoming International Women's Day on March 8, I wanted to chat about a topic that I am quite passionate about. The relationship between women and credit, most of these topics of course do not only apply to women, but it is women we see more frequently in these scenarios so I figured this was a great moment to touch on this otherwise sensitive topic.
Protect yourself with good credit.
Far too often, I see credit applications where one partner has very little or no credit. This is most commonly young women who are at home with the kids and have no income, therefore no loans or debts in their own name. This might not seem like a big deal, but I have also seen the other side when that young woman becomes a single mom and can no longer qualify for a mortgage or even a rental property (regardless of income or substantial child support or alimony payments) due to a lack of credit history.
I have had calls from young women trying to navigate leaving abusive relationships and wanting to keep the house but having no money and no credit with not even a cell phone in their own name.
This can obviously affect partners of all genders and relationships whether there are kids involved or not but I mention the single mom example as it is the most common that I see.
Starting from scratch is not easy and can add on years of stress to an otherwise already stressful situation. Being able to find housing is a pile of stress in and of itself, adding in a lack of credit history can make the entire process of moving on substantially more difficult than it needs to be.
This is not just applicable to scenarios of failed relationships, but also in the event of a death. Becoming a widow carries an enormous amount of grief and stress and can be a huge financial burden to overcome as well. Adding the stress of qualifying to keep your home to the mix should not be a consideration but is an unfortunate reality and side effect that most people do not think about in advance. As a result, there are a few things that everyone should do at minimum.
You should have a credit card in your name, use it minimally to keep it active (charge 1 small thing a month to it and pay it off in full each month). Keeping active credit gives you a credit rating, and also the added bonus of having additional funds at your fingertips if you needed it in an emergency. In the event of a death of a partner or even in a separation, there will inevitably be a period where funds are frozen in place and the little things like buying groceries can suddenly seem overwhelming when there is no emergency money available to you in your own name.
Repair past credit concerns. Having good credit opens doors and makes a lot of things easier. Pay off old collections (they don't always fall off the bureau), ensure bills are paid on time, pay down balances on credit cards, avoid future hiccups. Credit is easy to repair if you do the right things and the effort to maintain good credit will always be worth it.
Have some money in savings, if possible.
Have your cell phone in your own name. This will report to the bureau and help keep active credit reporting. Your line of communication to your friends, family, 911 and other emergency services should never be controlled by anyone else, even if your partner pays the bill.
Keep an eye on the use of any joint debts. If you are a co-signer on a 10k line of credit for example, you are 100% responsible for paying if it is racked up and it will damage your credit history if your ex chooses not to make the payments. The choice to keep joint or separate debts in a relationship is entirely up to those in the relationship but know that if your ex chooses to rack up that debt and stick you with the bill that you are still responsible for making the payments or your credit will suffer. You should be comfortable with the limits and balances of any debt which your name is attached to.
On a similar note, do not co-sign for debts that are not necessary or for people you do not explicitly trust. If you are co-signed on your friends truck loan for example and they miss a payment – it will affect your credit history as well. It should also be noted that co-signed debts are debt serviced into your own debt ratios at 100% of the debt. Meaning that truck payment you co-signed for will reduce your own purchase power if you want to buy a house. Roughly every $600/month in vehicle loan will reduce your mortgage borrowing limit by 80-100k so helping out your best friend 2 years ago might be holding you back from your dream home now. Any parents co-signing for their children should ensure that any changes to their own mortgage should be done prior to co-signing as it will affect their own future qualifying ability. Protect your own finances first and ensure any refinances, rate drops, early renewals etc. on your own home are done first before assisting anyone else.
Also, along this same path of thinking. Be certain you are buying a property with the right partner. There are large penalties to break a mortgage term and separating the property equity can be expensive in the event of a relationship breakdown. If you are not sure this person is 'the one', it might be better to wait.
Protect your interest in your property.
If you are in a relationship, do not assume you have rights to the equity in a property. If you contributed financially towards a property purchase, you should ensure your name is on the title of the property. If you do not qualify to be on the mortgage for any reason, rectify and make the effort to be added to the property title and mortgage as soon as you do qualify. Once your name is on the property, it cannot be sold without your signature. But without that, you may need to take your ex to court or mediation to be granted funds from the sale.
There are some instances where one partner is unable to be on the mortgage application due to bruised credit, high debts, income challenges etc. If you are in this position and are putting in money towards the purchase, you may wish to have a parent co-sign with your partner to protect your interest/ownership in the property.
I was told of one file last year from a fellow broker who said the parents gifted the down payment towards the purchase but their daughter was not on the application due to credit. The boyfriend purchased in his name and took their money for the down payment. Upon possession date, he got the keys to the house, broke up with his girlfriend and moved into the new property leaving her and her parents with no leg to stand on. The money was a gift and they had no recourse to recover it. They were not married and she was not on title.
At the end of the day, if you are not going to be on the mortgage or title of the property, you should go into it knowing and being completely ok with losing the money you put into it. If you are not ok with that, then someone should be in your place to protect your interest.
This can also be particularly challenging in the event of a death. As much as you want to believe that your partners family will be kind or fair to you if something happened, that is not always the case.
I know first hand of a friend who struggled in this scenario where her fiancé had passed away and she spent 2 years fighting his family in court to keep the house they owned together as it was in his name. The family took his rental property, his bank account balances and tried to take her house as well. She won, in the end, but it cost substantial lawyer fees and emotional trauma to fight to keep her own home.
Don’t be naïve when it comes to property purchases and protecting yourself. It does not mean you love or trust your partner or his family less. And the right partner will not be afraid of having this conversation up front to ensure you are both protected.
Get life insurance.
No, I’m not a life insurance salesman (but I know a really good one if you need a referral) but I truly believe in this product. There are quite a few different types of life insurance available, and you should have something in place. It can be intimidating: term life, mortgage life, disability, whole life, universal life etc. but a good life insurance broker can explain the variety of products and differences and advise on what might be the most suitable for you.
If you are the main bread winner in your household and something happens to you at work, your family should not be financially burdened by your passing. If you cannot stomach the idea that your spouse and children will need to sell the home if something were to happen to you, then you should without a doubt have insurance.
Do not rely on the policy provided to you from your work. If you lose your job, you lose those benefits and that policy.
If you are at home with the kids while your husband works out of town in perhaps a dangerous job, this is particularly important to think about. Especially for those who contract and do not have company benefits for life or disability.
Be proactive, not reactive
All in all, there are a lot of factors to consider when thinking about protecting yourself financially, and unfortunately, none of this is taught in school. It is too often the lessons of experience that teach us in the hard times. Being proactive about this can save you a lot of pain and hard lessons down the road and in the end, I hope none of these measures are ever necessary.
Take control of your financial situation, fix your credit if necessary and be protective of your name and your credit score wherever possible. As always, feel free to reach out if you would like to chat about anything mortgage related: Jill Moellering 780-720-4034