A long life is peppered with happy events, many involving emotional and financial commitments. Before signing on any dotted lines, it’s important to know what you’re getting yourself into — including how each of the following might affect your credit score.
1. Buying a house
Purchasing a home with a mortgage can have big implications for your credit, the best of which won’t be noticeable right away. Your credit reports will show a hard inquiry caused by your mortgage application. Consequently, you should expect your credit score to drop by a few points in the months immediately following your mortgage approval.
But after those first months, you’re likely to see your credit score climb if you make your mortgage payments on time. Unlike rent, mortgage payment activity is always reported to the major credit bureaus. (Some services now report rent to credit bureaus, so you may be able to boost your score with housing payments even if you rent.) Over time, a series of on-time payments should cause your score to rise.
You may find this especially dramatic if you don’t already have an installment loan on your credit report. Creating more variety in the types of credit accounts in your profile may give you a boost, which is something to look forward to as you make your house a home.
2. Getting married
To be clear, getting married does not cause your credit scores or credit reports to be combined with your spouse’s. Married couples maintain their own reports and scores, even if they choose to merge their finances in other ways. However, “both of you are responsible for all debt incurred in any joint credit accounts,” says Rod Griffin, the director of public education at Experian, one of the major credit bureaus. “A missed payment on a joint account will negatively affect both of your credit histories.”
Also, “if one of you has a less-than-glowing credit history, it would affect your ability to qualify for joint accounts, especially large purchases such as mortgage,” Griffin says. “While your credit reports will not be merged, they both will be considered when applying for new joint credit.”
This is just one reason that keeping an open dialogue about money is important in a marriage — you don’t want the financial obligations you enter after your nuptials to get in the way of maintaining your good credit standing.
3. Opening a business
Fulfilling a lifelong dream of turning a great idea into a full-fledged business is a good way to build long-term wealth. But it could have serious implications for your credit, especially in your venture’s early days. Here’s why: Before your business has established its own credit score, you’ll probably have to rely on your personal credit to qualify for credit cards and loans.
What’s more, you’ll almost certainly be required to make a personal guarantee when you secure financing for your business. If sales slump, a personal guarantee makes you responsible for coughing up payments on your business loans from your own funds. And remember, business loans tend to be large, so these payments could be hefty. Your credit score could plummet if you fall behind or are forced into bankruptcy,
This isn’t necessarily a reason to avoid business financing altogether, but you should recognize the risk and manage it wisely — which is a smart way to approach other major life events, too.
This article was updated July 27, 2016. It originally published June 5, 2015.