“What’s yours is mine and what’s mine is yours” — it’s a nice spousal sentiment, but not applicable when it comes to one very important thing in your life: your credit score. Here are a couple of scenarios when having your own score will come in handy, as well as tips on how to build credit.
Why do I need to build my own credit?
In the unfortunate event that something happens to your spouse, it’s important to have your own credit. Here are two major instances where this would apply:
- Divorce: About half of marriages last “until death do us part.” Unfortunately, this means the other half don’t. Even if you’re certain your marriage will flourish, you should have your own credit history.
- Death: In the event of your significant other’s death, you need to have your own credit history so you have access to the financial tools you’ll need.
Death and divorce aren’t fun topics, but it’s important to prepare for the worst-case scenario while hoping for the best. If you don’t have credit in your own name, you should start building it now.
What’s in a credit score?
While there’s a bit of a Catch-22 involved — to get credit you need to have credit — it’s possible to build credit from scratch.
Start by knowing what factors influence your credit score. Your credit score is made up of payment history, credit utilization, length of credit history, new credit and types of credit. Here’s how those factors work:
- Payment history: Pay your bills on time, every time. Timely payment is one of the biggest influences on your score.
- Credit utilization: Try to keep balances at 30% or less of your credit limit. For instance, if you have a $10,000 credit limit, don’t carry more than $3,000 in debt.
- Length of credit history: The longer you have credit accounts in good standing, the better.
- New credit: Don’t apply for too many new accounts at once, especially if your credit history is short. Too many hard inquiries in a short time can ding your score.
- Types of credit: A good mix of credit accounts is generally better than one type of account, but don’t take on loans purely for the sake of having different types of credit.
Keeping these five factors in mind, you’re now ready to start building your credit.
How should I build and maintain my credit?
One of the easiest ways to build your credit for the first time is by applying for a credit card — either secured or unsecured — and using it wisely. What type of card?
- If you’re a college student, you may be able to get approved for a student card if you have an income. Here are some great student cards.
- A secured credit card: For those without credit (or with bad credit), secured credit cards are a great option. You secure the card with a cash deposit equal to your credit limit — so if you get a $1,000 limit, you put down $1,000 as collateral. Here are our favorite secured card options.
If you go with a secured card, you may be able to upgrade it to unsecured as you build your credit. If not, you can always get a new unsecured card after you’ve proved your creditworthiness.
You can also ask your spouse to add you as an authorized user on his or her credit card. An authorized user is someone who’s able to use a credit account, but isn’t required to make payments and can’t make changes to the account.
Becoming an authorized user can raise your credit score without you incurring any liability. You should ask your significant other to check with his or her issuer to make sure it reports authorized user activity to the major credit bureaus.
Once you’ve gotten some type of credit account, it’s important to use it in a way that will improve or maintain your credit score. Make sure you’re doing the following:
- Pay all bills in a timely manner. This is the No. 1 thing you can do for your credit. Automate your monthly payments to make this easier.
- Pay off the balance each month. It’s a good idea to get in the habit of paying the entire balance of your card every month. This will ensure you don’t pay interest and will keep your credit utilization low.
- Avoid applying for multiple credit accounts at once. New credit can decrease your average length of credit accounts, and its impact is greater if you have a short credit history. Apply for credit sparingly right now.
- Be patient. It can take some time to build up your credit score, so don’t fret if you think it’s taking awhile. Practice patience and enjoy watching your credit score inch its way up.
- Pull your credit reports each year. Americans are entitled to free credit reports from the three major reporting bureaus annually. Pull your reports to check for any errors or discrepancies.
No matter how great your spouse’s credit score is, it’s important you establish your own credit history. Hopefully, you won’t have to deal with divorce or the death of your significant other, but it’s a good idea to safeguard yourself against these possibilities — just in case.
This article was updated Sept. 6, 2016. It originally published May 5, 2014.
Rings and credit card image via Shutterstock.