Women and good financial credit: You may need it sooner than you think
BY JULIA ANDERSON
Don’t wait until you are widowed at 67 to build a credit history. When you lose a spouse to death or divorce, (or never marry, for that matter) creditors may view you differently, as a bigger credit risk.
It may come as a surprise for many women that access to credit in the form of credit cards, a car loan or mortgage refinance may be a bigger challenge, when single and financially independent. The pandemic has been a set-back.
Last year, some women lost income, increased debt, and put less into savings. All of this can undermine your credit standing. According to Experiena.com, a major online credit score service, 2.7 million women left the workforce in 2020 as compared with 1.7 million men. Female participation in the workforce is now the lowest since 1988, the report said.
Married or single, women need a good credit history in their own right. It is another aspect of planning for the unexpected…an unplanned death, an unplanned divorce, a serious accident, or illness that can affect finances and the ability to borrow.
What is good credit?
Establishing good credit means that you pay bills on time. It means not taking on more debt than you should related to your income. Good credit means not having filed for bankruptcy in the past seven years, not having been foreclosed on or had a debt sent to a collection agency.
Lenders use your income and your bill-paying history to establish your credit score, which in turn helps determine if you are a good credit risk and likely to pay back a loan over time.
Financially independent women know that a good credit score helps with credit cards and loans, but also with lower insurance rates and when applying to rent an apartment. Yes, you can live without a credit score but that might mean carrying around more cash or going through a bigger hassle is securing a loan.
What is a credit score?
There is no one credit score, but a higher score or scores usually means it will be easier to get a loan or rent an apartment.
“Any credit score depends on the data used to calculate it, and may differ depending on the scoring model, the source of your credit history, the type of loan product, and even the day when it was calculated,” says the federal Consumer Financial Protection Bureau. “Most credit scores range from 300-850.”
The good news is that in 2021, men and women now share the save average national credit score of 705. “This is a 1-point increase for women from 2019 and about a 10-point increase for both groups from 2015,” said Experian.com, an online credit rating service.
How to build good credit
Establishing good credit takes time, maybe several years, as you create a bill-paying record. Here are tips from the federal Consumer Financial Protection Bureau for how “get and keep a good credit score.”
Pay your loans on time, every time.
Don’t get close to your credit limit on a credit card. Only apply for the credit you need. (According to Consumer Financial Protection, if you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed for the worse.) Keep your credit card debt below 30 percent of your limit.
Avoid high interest rate charges by paying off your credit card(s) every month.
Fact-Check your credit scores. (You are entitled to a free credit report every 12 months from each of the three major consumer reporting companies – Equifax, Experian, and TransUnion. To do that visit AnnualCreditReprt.com or call 877 322 8228 to get a report)
Avoid web sites that offer free credit report assistance. For most, it’s free, only if you buy their products.
Unlike Dave Ramsay, I believe there is “good” debt but that is debt you can pay off on time. I never believed lenders who told me that based on my income I could afford xxxx amount of mortgage debt. For me, the amount was about half what they said I could borrow.
Establish a credit card in your own name, separate from a joint family account. While married, I’ve kept my own name on credit cards and my home mortgage loan. When refinancing your home mortgage, do it in your own name, separate from a new married partner. Otherwise, he becomes joint 50 percent owner on the title.
In a divorce, make sure your spouse’s aggressive attorney does not put a lien on your house without notice. Then this attorney forgets to remove the lien in the divorce settlement. Only three years later do you find out about the lien when you can’t refinance your loan unless it is removed. That means tracking down your ex-spouse, a frustrating and painful experience.
A recent survey by creditsesame.com, an online card and loan tracking service, showed that 55 percent of women say, “they were never taught the best ways to manage credit and about a quarter would give themselves a failing grade when it comes to their current understanding of credit scores.” Tell your granddaughters about the good and bad of credit cards and about how to get and keep good credit.
What to do if you have BAD credit
Credit counseling can help if you have bad credit, are behind with bill paying or have defaulted on a loan. Credit counseling services can help you organize a debt management plan to pay down debt. Some of these services are free, some are not. Read the fine print before signing an agreement.
For more: Go to www.consumerfinance.gov, search for credit counseling services. Topics include how to choose a credit counselor, counseling service fees and agreements. Or search YouTube for my Smart Money piece on credit and credit counseling services. Click here.
It wasn’t long ago (early 1970s) that women could not apply for a loan in their own name, not gain a credit card in their own name without a male co-signer or make larger down payments on mortgage without a co-signer.
The 1974 Equal Credit Opportunity Act prohibited creditors from such discrimination based on race, color, religion, national origin, sex, age, and marital status. It took years of lawsuits and complaints for lenders to comply. I know because in the late 1980s when divorcing, I asked my bank to reissue my credit card using my new name. It refused. I was shocked. I had the same job, the same credit history and same savings and checking accounts.
I then applied to a national Mastercard issuer, got a new card, and changed banks.
A Quote: “If you have debt, I’m willing to bet that general clutter is a problem for you too.”
-- Suze Orman, American financial advisor, book author and podcast host. (1951 - )
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do!
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