March is National Credit Education Month. Visit GECU’s Money Minutes blog or follow us on Facebook for credit tips and insight to help you this month and beyond!
If wedding bells are in your future, you may be wondering how such a big life event will impact your finances. When it comes to your credit score, you can breathe a sigh of relief knowing marital status does not directly affect this number. However, it’s important to familiarize yourself with the indirect ways in which it might and why a good credit score can lay a solid foundation for your union.
Knowing what to expect
Marital status won’t make your credit score go up or down, and you and your future spouse’s credit scores will remain separate and be determined by your individual credit factors.
The only exception is for credit factors you share, such as a personal loan you applied for together. Payment history on this account would then affect both of your credit scores. No matter who is responsible for making payments each month, make sure you are both on the same page about the importance of on-time payments. If you aren’t, someone may end up surprised by an unknown late payment and subsequent ding to their credit score.
While marrying someone with bad credit won’t hurt yours, it is beneficial to check your scores. Doing so can help you identify if one or both of you needs to improve your credit related habits.
Recognizing the benefits
How does a good credit score help you?
While everyone’s path looks different, many couples’ next step after marriage is to buy a home. In order to do so, you will likely have to secure a home loan. Your mortgage rate, and sometimes even your ability to get a mortgage at all, is tied to your credit score (among other factors).
The lower your credit score, the higher your mortgage rate is likely to be. Over time, the higher rate can add up. Over 20 years on a $244,000 mortgage, someone with a 680-699 credit score can pay over $20,000 more in interest than someone with a higher score.1
If kids are in your future or you already have a child together, you may be eyeing the latest SUV or minivan. In order to afford driving it off the lot, many couples need a car loan. Just as a low credit score can garner higher interest rates on a mortgage and affect loan terms, it can do the same for a car loan.
What is a “good” credit score?
Each credit bureau has its own scoring model, so your score may be considered better with one than another. If your credit score is 579, it is considered fair under Equifax®’s breakdown, whereas under another bureau’s model your credit could be labeled as “very poor.” As you can see, there’s some variation. Ultimately, it’s more important what your lender considers a good score. Confirm which of the three main credit bureau’s your financial institution pulls credit information from so you can see where you land on each bureau’s tier structure. From there, you can work to get into a more favorable tier. If your financial institution pulls from all three of the major credit bureaus, just know that a minimum credit score of 620 is typically needed to get a conventional mortgage loan.2
Some financial institutions may look to different bureaus for different types of loans (e.g. they may primarily use Equifax® for consumer or auto loans, but regularly pull from all three bureaus for mortgages). Visit General Electric Credit Union's (GECU) credit scores page to learn more about accessing your FICO® Score for free!
- Tip: Learn how to read a credit report and what's included in one with GECU's free, downloadable eBook The Ultimate Beginner's Guide to Credit Scores.
Upping your credit score
If your past credit and borrowing history isn’t stellar or paying the DJ and the caterer led to mounting credit card debt, there are ways you can act now to get your finances back on track.
1. Create a budget
If you’re planning a wedding, the idea of creating another budget probably makes your head spin. Luckily, this one should be relatively simple to put together. First, write a list of monthly expenses, including groceries, gas, rent or mortgage payments, utilities, and so on. Once you know how much you spend on basic needs, you can compare this to your monthly income to see how much is leftover. Devise a plan for any leftover funds so you can be intentional about your finances. You can also review your bank statements to see what you’re spending money on, and if there are any habits you may need to be reel in (e.g. unnecessary online shopping). There are apps available if you’re unsure how to structure a budget, and some financial institutions even offer their own money management tools linked to your accounts.
2. Get a secured credit card
A secured credit card is an attractive option for those with limited or poor credit history and have difficulty getting approved for other cards. It is backed by a cash deposit from you, the cardholder. This deposit becomes your credit limit — e.g. if you deposit $300, your credit limit is $300. This gives you the opportunity to show your creditworthiness, so stay on top of payments, just as you would with any credit card.
3. Pay your balance
On-time payments are crucial when it comes to building good credit. Whether you mark a paper calendar or use your phone’s calendar app, make sure you know your credit card bill’s due date. Knowing it’s coming allows you to plan in advance to ensure enough funds are available. Paying before the due date is also an option so you don’t have to wait until the last minute and potentially risk forgetting.
Or, see if you can set up automatic payments. Your financial institution will make automatic payments to your credit card using a linked checking account. Only go this route if you have a reliable and regular monthly income.
4. Keep old accounts
Even if you’re no longer using a credit card, you should still keep it open. Closing a card lowers the amount of credit you have available. Because of this, your credit utilization rate — the amount of revolving debt vs. your total credit limit — can change. Say you have two lines of credit: one is $1,000 and one is $5,000, and you have a balance of $1,500 between the two of them. Your credit utilization rate would be around 25%. But if you close the $1,000 line of credit because you no longer use it, your credit utilization rate would increase to 30%.
It’s important to keep track of your credit utilization rate because it accounts for 30% of your FICO score. To calculate this, divide your current balance by the credit limit, then multiply the number by 100 to get a percentage.
5. Know your limits
You may be wondering, what is a good credit utilization rate? A rule of thumb is to stay at or below 30%. This will help you keep credit card payments manageable, especially if you’ve struggled to do so in the past. It also shows you handle credit responsibly.
Marriage is a chance to build something together as a couple, which may include individually building better credit history. A perfect credit score won’t happen overnight, but with consistency and smart usage, both you and your soon-to-be spouse can improve your scores. General Electric Credit Union offers many ways for you to build and stay on top of your credit score. Apply for GECU’s secured credit card with a minimum $300 deposit and enjoy a low rate and additional perks at no annual fee.3 GECU members who are enrolled in mobile or online banking and have an eligible loan or deposit product also have access to their FICO® Score, so you can keep your finger on the pulse of your credit health.