Can life events affect my credit score?
Most major life events—whether positive or negative—affect your credit report, some more than others. The following major life events can have a profound impact on your credit:
Marriage: Marriage opens up financial opportunities because you can pool your money, but it also brings on new responsibilities that can affect your personal credit and your credit report.
Divorce: If you are in the midst of a divorce, be sure to contact your creditors and credit bureaus in order to protect the integrity of your credit report. These agencies will record your new contact information to help separate your financial transactions. Also, if your ex-spouse is disgruntled, secure your mail so he/she cannot steal items such as approved credit card applications. It’s also a good idea to speak with an attorney about closing joint accounts and paying off balances in the event of a divorce.
Buying a home: The purchase of a home, particularly if you are a first time home buyer, affects your credit report both positively and negatively. For one, it helps you build equity and adds to your net worth. But on the other hand, a mortgage is a huge loan that substantially increases the amount of debt on your credit report.
Having a baby: With children come significant financial demands, and therefore, new demands on your credit. Your expenses will increase after you have a child, and you will have to start using your credit wisely in order to plan for college in 18 years.
Death of a spouse: If you share a joint account with your husband or wife, a creditor cannot change the terms of the account if your spouse dies. Instead, you will most likely be forced to reapply in your own name. If you haven’t established sufficient credit yourself, you may be turned down. So it’s important to maintain some form of independent credit throughout your marriage.
A lost job: If you lose your job, be sure to inform your lenders and credit card companies immediately; they may be able to help you achieve reduced payments while you are in between jobs.
Bankruptcy: The most common reasons for filing bankruptcy are: unemployment, large medical expenses; seriously overextended credit; marital problems and other large unexpected expenses. In a bankruptcy, assets in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats will be liquidated by the trustee. One of the major purposes of bankruptcy legislation is to afford the opportunity to a person hopelessly burdened with debt to erase his or her debt and thereby get a fresh financial start. A bankrupt’s debt is erased when he or she is discharged. The debtor is discharged 3 – 5 months after bankruptcy is filed. At that time all debts (with some exceptions) are written off.
Foreclosure: Like any other negative item, a foreclosure stays on your credit report for 7 years. However, foreclosure affects your credit score predominantly for the first 2 years. Once you start rebuilding your credit your score gets better with time it will take almost 2-4 years to get a mortgage after foreclosure. Even if foreclosure affects your credit rating, you can manage your finances wisely and rebuild your credit. All you need is to stick to your budget, make debt payments on time and avoid overspending.
If you approach each individual life event with the right attitude and a genuine desire to become financially responsible, you’ll look back on this experience someday as an educational one. Not only will you learn how to avoid this predicament in the future, you’ll also have the knowledge necessary to help others — or help them avoid it completely.