Couples and Credit Scores: Is It a Match?

Dear Readers,

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 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 stronger level of commitment in a relationship.

So 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.

Negative credit information generally stays on your credit report for seven to ten 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 financial institutions will provide credit scores for free, so be sure to check with your provider first. To put things in perspective, the top FICO® score is 850; the average is 706; 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:

1. 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.
2. Use credit cards with care—How much and how often you borrow makes up 30 percent of your score. Keep your credit card balances low, no more than 25% of your available limit.
3. Increase the length of your credit history—The longer you have credit (and use it wisely), the better your score. Your history accounts for about 15 percent of your score.
4. Minimize new credit requests—Applying for multiple credit cards or loans in a given period of time can lower your score. New credit requests account for 10 percent.
5. Hold different kinds of credit—About 10 percent of your score depends on the type of credit used. A consumer with revolving debt (i.e., credit cards), a car loan, and a mortgage, and who keeps up payments, will have a higher score than someone who uses just one form of credit.

Keep in mind that there’s more than just one credit score and there’s more than one credit rating agency. Scoring model formulas and algorithms also periodically change, but following these five guidelines will help keep you on the right track.

Why couples should talk about this

I believe that good communication about money helps build strong relationships. Being honest and open about your feelings and experiences about borrowing money and using credit can help your relationship grow.   

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 you and your partner are 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.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.