We all go through major life changes, both positive and negative. All have the potential to affect your credit, in either a positive or negative way. The outcome depends on how you handle these life events and the corresponding changes.
Consider the following examples.
1. Going to College – College is more than four years of fun – it's an investment in your future. Is your degree likely to result in a job that pays enough to cover your student loans?
You can build credit by making all student loan payments on time or ruin your credit through missed payments and excessive spending. If you need help, income-based repayment plans and other assistance programs are available.
2. Changing Your Marital Status – Your credit scores won't blend after marriage, but activity on joint accounts will affect both credit scores. Have that difficult financial conversation before you get hitched to make sure you're compatible financially.
Similarly, if you get divorced, joint account activities affect both scores – even if your spouse is the only one who uses the account. Remove your name from joint accounts whenever possible.
3. Having Children – Congratulations! Your life will never be the same again. That's also true of your budget and expenses. According to the U.S. Department of Agriculture, it costs over $233,000 to raise a child from birth through age seventeen.
Expenses will increase, and not just a little. Adjust your budget to handle the changes and avoid racking up excessive credit card debt.
4. Career Changes – Income doesn't affect your credit score, but it does affect your ability to pay bills on time. A career change that raises income can help you increase your score by lowering debt levels (assuming you don't spend your newfound gains). A job loss requires spending cutbacks and working out payment plans with creditors to avoid missing payments until you can get back on your feet.
5. Buying a Home – A home is the largest single expense most people will have in their lives. Make your purchase as part of an overall long-term budget, and don't skimp on the down payment or stretch to get the home of your dreams.
If your housing expenses are taking up too much of your budget, you'll have to cut back on spending in other areas or rack up excessive debt just to get by – harming your credit score in the process.
6. Starting a Business – You'll incur debt when starting a business, and you need a solid financial plan to get through the lean early years. It's easy to fall into a debt spiral and ruin your credit if you've taken out personal loans or poured other personal assets into your business. Also, consider your business structure carefully with respect to personal liability.
7. Retiring – You probably won't use credit as much or take on many new debts in retirement. However, you don't want to become credit-invisible – with no recent record that lenders can use to judge your creditworthiness. Keep at least one card open, make small charges regularly, and pay them off in full at the end of each pay period. This will keep your credit score high without incurring significant debt.
You've probably been through at least one of these life-changing events. Was the effect on your credit score positive or negative? If it was negative, did you learn anything from the experience? Learning from your mistakes is a major component of maintaining a high credit score – and it's also a pretty good approach to life in general.
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