Choosing to live with a roommate is a smart financial move. You’ll save money on rent, which you can use to save or pay off your student loans.
But if you’re not careful, there’s a chance that cohabitating with a friend could hurt your credit. Worried? Don’t be – the Nerds have you covered. We’ll show you how to keep your credit in check when you’re sharing your living space.
In theory, a roommate shouldn’t impact your credit
First, it’s important to understand that in theory, there’s no reason that a getting a roommate should affect your credit. The three major credit bureaus keep records on every individual, not every household; even married couples have separate credit reports. This means that if you’re paying your bills on time, keeping the balances on your plastic low and applying for new credit sparingly, your credit score should be solid.
What’s more, the payments on household bills you share with your roommate – rent, utilities, etc. – usually aren’t even reported to the major credit bureaus unless you end up in collections. So even if you’re sharing an account (which you shouldn’t – stay tuned) and one of you pays a bill a little bit late, the other’s credit shouldn’t suffer.
In practice, there’s potential for your score to get dinged
Unfortunately, when it comes to a roommate’s effect on your credit, there’s sometimes a difference between theory and practice. There are some situations where a roommate’s irresponsible behavior could end up dinging your credit. For example:
You don’t have separate lease agreements – Rent payments typically aren’t reported to the credit bureaus on a month-to-month basis. But if you or your roommate fails to pay altogether, your landlord could sell your account to collections. This will show up on your credit report and do serious damage to your credit score.
If you and your roommate don’t have separate leases and she doesn’t pay, you’ll be expected to cough up the whole bill. If you don’t, you could end up with an eviction notice and a black mark on your credit report.
All the bills are in your name – Like your rent payments, utility payments aren’t usually reported to the credit bureaus monthly. Bu also like rent, a total failure to pay could land you in collections.
If all the bills are in your name and your roommate doesn’t pay, you’ll have to come up with the cash. If you can’t, your credit score could end up in tatters.
You and your roommate have similar names – Two of the identifiers that the credit bureaus use when adding items to your report are your name and address. If you and your roommate have similar names, there’s a chance your information could get muddled since you have the same address. If her track record with money isn’t stellar, you could wind up with a mistake on your credit report that will drag down your score.
Your roomie is dishonest – Hopefully, your roommate is someone you trust. But if your housemate is dishonest, it would be very easy for her to steal your identity and rack up credit card debt simply by snooping around your mail or other important documents. This could hurt your score and be very difficult to unravel.
How to protect your credit when you’re sharing a home
The good news is that there are some practical steps you can take to protect your credit while you’re sharing a home with a friend. Take a look at the Nerds’ tips below:
- Insist on separate leases – If your landlord isn’t willing to create two separate leases (one for each of you that lists your individual rent obligations), look for another place. Being stuck with the whole rent payment in the event that your roommate doesn’t pay her share could lead to financial trouble – don’t take the chance.
- Don’t open any shared credit accounts – Some roommates open a shared credit card to pay for common household expenses, but it’s not worth the risk. Avoid sharing accounts of any kind.
- Put some bills in her name and some bills in yours – This way, you’re not officially on the hook for all the bills if she runs out of money one month.
- Keep your personal information out of plain view – To be on the safe side, keep your personal information out of your roomie’s sight. This reduces the risk that she could steal your identity.
- Check your credit report frequently – You should be doing this anyway, but checking your credit report at least once a year will give you a good early warning if one of the bureaus is mixing up your information.
- Communicate with your roomie – Keep the lines of communication open with your housemate, especially as it relates to money. This will help head off minor financial issues before they become serious.
The takeaway: In general, sharing a home with a roommate is perfectly safe for your finances. Just be sure to take the precautions discussed above to prevent an unintended credit catastrophe!
Roommates image via Shutterstock