Thursday, August 16, 2007

Jewish Economics - Building Credit

Young couples tend to put both of themselves as the applicants on different aspects of credit, say, credit cards. (One as the applicant, the other as "listed on the account".) This can be great if they know they will be building good credit - each positive action will help both of their credit scores. However, many young couples will be struggling, particularly in those first few years, and their credit - while it may not be getting hurt badly - will not be improving all that much. Each negative action will doubly impact both spouses, hurting both of their credit scores, and then make later moves hard for either to do when they're at the stage where they are finally digging out of that hole... slowing down the recovery process.

Planning and budgeting are obviously important in general, but it may be wise to plan even further: For couples who know that they'll be picking up debt at first (say one is in graduate school or not earning income), it may [with many qualifications] make sense to focus on what larger actions they will be doing when - buying a house, getting a car, etc. Once they know what those plans are, they can focus their budget on keeping the credit of one spouse high at the sacrifice of the other when choosing which bills to pay off. In the long run, this may allow them to get that house or car at a much better rate, which will help establish even *better* credit, and allow them to then fix the other spouse's credit faster as well.

(UPDATE: In case unclear from above: Therefore, particularly for couples who know they will be picking up debt, it may make far more sense to only list one spouse on each credit card or other credit and not both.)

As always, every situation is different, so please contact a trusted financial adviser before making any major decisions - not the random musings of a blog. Thanks.

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