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Couples
on
Valentine's Day
exchanged cards, kisses and — if they're really
serious — chocolates. Why not credit reports?
Once this
would have been unthinkable. But modern lovers are less
bashful about discussing finances than even just a few
years ago, financial experts say. Thank the weak economy
for this new openness.
More
unmarried couples are entwining finances to help a
partner through tough times or buying houses together to
take advantage of government's popular first-time home
buyer credit, financial experts say. And the Great
Recession has raised the desirability of financially
responsible soul mates, according to some recent
surveys.
For
instance, two-thirds of singles polled for PayPal's
annual couples survey said they don't want to date
someone deep in debt. One-third would delay marriage
until a partner improved his or her credit score. And
one out of 10 people say they were either dumped or
broke up with someone over debt. (Women were more likely
to end things with a partner in the red.)
In a
separate survey by FICO, creator of the widely used
credit score, about half of singles said they wouldn't
date anyone with a score below 650. It takes at least a
score of 760 to get the best mortgage terms. They say
love is blind, but usually you can discover in a month
or so of dating if a sweetheart is a big spender,
tightwad or compatible with your money management style.
As you become more committed to the relationship, here
are some tips to navigate finances:
SHOW ME
YOURS ...
Exchanging
credit reports can be highly revealing, much more so
than a credit score, says
Rod Griffin
, who writes an advice column for the credit bureau
Experian
.
A score
tries to predict if you're a credit risk to lenders. But
the report reveals more relevant data, including
outstanding credit card balances, late payments or a
bankruptcy in a lover's past, Griffin says. Plus,
reports are free yearly at www.annualcreditreport.com.
Demanding
to see another's credit history on the first or second
date would scare off most. But you definitely want to
see a report and credit score months before buying a
house or other major purchase together.
A weak
report or credit score doesn't have to be a deal
breaker. Instead, teach your partner how to improve a
track record with creditors, says
J.D. Roth
, editor of the blog GetRichSlowly.org. Paying bills on
time and keeping card charges way below the credit limit
can help.
"Set
an example. Offer suggestions in a non-nagging
way," Roth says.
HONEY,
CAN YOU SPARE A DIME?
Lending
money can quickly change a relationship — for the
worse. The lender may resent a borrower who continues to
spend while the loan sits unpaid. The borrower may chafe
under not-so-subtle hints to pay up.
For the
relationship's sake, consider the money a gift with no
expectation of seeing it again, says
Sheryl Garrett
, a financial planner and co-author of "Money
Without Matrimony." And if your loved one someday
chooses to repay your generosity, all the better.
But if it
is a loan, draw up a legally binding promissory note
with the terms — amount borrowed, when it will be
repaid and the rate if you're charging interest, says
Frederick Hertz
, a lawyer and co-author of "Living Together: A
Legal Guide for Unmarried Couples."
CO-SIGNING
HAZARDS
You may
be tempted to help by co-signing on a mate's loan or
mortgage. But this puts you on the hook for repaying the
debt if your partner doesn't.
"It's
like a minefield. You can make it through without things
blowing up. But when they blow up, they blow up in a big
way and you're in trouble," Roth says.
Maybe you
can't imagine your significant other walking out on you
or a debt. But it can happen, and a lender isn't going
to forgive a loan just because the two of you have
split.
"Be
aware when you co-sign, that loan will appear on your
credit history and will affect your ability to qualify
for credit," says
Experian's
Griffin. Negative information stays on a record for
seven years, longer than many relationships.
PLASTIC
PARTNERSHIPS
Depending
on the issuer, you may be able to add a loved one who
can't qualify for a credit card as an authorized user on
your card. The two of you will share the credit history
on this card, which can boost your mate's credit score
if bills are paid on time, says FICO spokesman
Craig Watts
.
An
authorized user can make purchases with the card but
isn't liable for the bill. The primary cardholder is
responsible for the debt, which again holds risks.
Attorney Hertz recalls a case where an authorized user
took out an
$8,000
cash advance in retaliation of her partner's infidelity.
"One
of the privileges of being unmarried is you aren't
legally liable for your boyfriend's debt — unless you
voluntarily sign up," Hertz says.
A better
option: Have your sweetheart use a debit or secured card
tied to his or her bank account.
OWNING
PROPERTY
When
buying a house or other property, write up a
co-ownership agreement, Hertz says. Include how much
each contributes toward the purchase, who pays the
taxes, insurance or other expenses and how the property
will be divided if you break up or one dies, he says.
Many
unmarried couples are buying houses together to get the
$8,000
federal first-time home buyer credit. Some couples put
the mortgage and house only in the name of the most
credit-worthy partner, even though the other is helping
with the down payment or mortgage.
Hertz
discourages this. But if you choose that path, have a
lawyer draw up a written agreement to protect the
interests of the partner not on the title, he says.
MOVING IN
If you're
talking about setting up house, approach it like a
business deal, Garrett says. Write up a cohabitation
agreement, which is basically like a pre-nuptial
contract without the nuptials, she says.
The
agreement should detail the financial responsibilities
of each and what happens if the relationship ends, she
says. For instance, what happens to the house or who
gets first dibs on the apartment?
The
document also can spell out whether one mate will
provide financial support to the other after a break up,
Hertz says.
Some
couples going through this exercise discover they are
better off living apart, Garrett says. If you do move in
together, consider a joint checking account that both of
you put money into to cover household expenses, she
says.
Granted,
promissory notes and heart-to-heart talks about finances
would seem to dampen passion. But lawyer Hertz argues
that these measures are romantic.
"To
say to somebody, 'I don't want our relationship to fall
apart because of your financial problems' is
romantic," he says.
LOVE AND
MONEY
Sure,
pretty eyes and a great personality help people pick a
mate. But recent surveys reveal that finances and money
management are factors for many when choosing a partner:
—One-third
of singles would not move in or walk down the aisle with
anyone who didn't make a "fair amount of
money."
—Forty-two
percent feel a partner spends too much money.
—More
than half of men and women would disclose their finances
to a partner after dating one month
—Only
one percent insist that a partner have a FICO score of
800 to 850, with 850 being perfect.
—Forty-five
percent of couples fight about finances at least once a
month.
—Couples
now fight most about money and finances; last year, it
was household chores.
Sources:
PayPal 2010 Can't
Buy Me Love Survey
of 1,000 individuals;
myFICO's Valentine Survey
of more than 1,500 customers
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