Finances may be among the least sexy parts of a romantic relationship. But they are among of the most important parts, even though no one accepts a marriage proposal with the words, "Yes! I can't wait to have a joint checking account with you." Nor do college sweethearts usually review their student loan debts while strolling campus, hand in hand.
But couples should make time to discuss personal finances -- the earlier, the better. Couples with a greater disparity in their credit scores are more likely to break up, according to preliminary results of a study by Federal Reserve Board researchers.
The draft of the paper, called "Household Formation, Credit, and Trustworthiness" analyzes the individual and household credit scores of about 35,000 married and cohabitating couples from 1999 through 2012. It outlined credit score match quality, or the difference in partners' credit scores at the time they move in together, and the researchers found that credit score match quality is a strong indicator of whether or not the household remains intact.
Though the researchers will further explore the data and their conclusions in a future draft, they said the relationship between credit score match quality and household breakups is "quite strong."
Bridging the Credit Score Gap
It's not that people should bring copies of their annual credit reports on dates, but as a relationship gets more serious, the depth of financial conversations should also grow. A good first question: Does your partner know what a credit score is?
Before you can get into someone else's finances, take stock of your own with Credit.com's free Credit Report Card. Once you see where you stand, it's time to see how you and your significant other's credit histories match.
But a huge credit score gap isn't a death sentence for your relationship. (On the other hand, if you're looking for a reason to end it, you're welcome.) While the study says those with a like-minded approach to money management are more likely to stay together, there are ways to build credit so the disparity isn't as large.
If there are large differences to overcome, seeking outside advice might be a good idea, especially if one spouse isn't thrilled about role-playing as a financial counselor.
Check your credit reports and correct errors. Of course, you want to make sure that everything is being accurately reported, from your current address to your closed accounts. (For more guidance on how to dispute an error on your credit report, look to this guide from the Federal Trade Commission.)
But you also want to check the details about what is being reported about your current accounts. For example, it can make a big difference to your score if your credit limit for a card is understated. Imagine that you owe $5,000 and your limit is $15,000. That means you owe 33 percent of your limit. If your credit limit is incorrectly listed as $8,000, though, it will look like you've borrowed 63 percent of your limit.
When you fix errors or take actions that should boost your score, make sure that all three of the main credit-reporting agencies (Equifax, Experian and TransUnion) know about it. By law, you can get a free copy of your credit report from each of them once a year -- do so, in order to spot errors and find other score-boosting opportunities.
One gambit few people think of is simply asking for what you want. In order to help you pay down your debt more quickly, you might ask your lender to lower your interest rate. If the lender refuses, see if you can find a lower-rate card and transfer the debt.
If you've got one or two glaring late payments on your credit record, you might ask your lender if they could be erased, in what's called a "goodwill deletion." Lenders are likely to be especially responsive to their best customers. And if you're dealing with a collection agency over some debt, see whether they'll delete it from your record if you pay it off. That can be well worth it.
If you're planning on closing some of your accounts, think twice. It's often a sensible thing to do to simplify your financial life, but closing an account can actually ding your credit score. One reason is that it actually reduces your available credit. Oddly enough, a host of seemingly sensible moves can hurt you -- such as using just one card for most of your charges. Even if you prefer using a newer card, keep older accounts open and use them occasionally to keep them active. Over time, that will give you a longer history and help improve that part of the credit score calculation.
Opening multiple accounts in a short period of time may boost your available credit, but it sends the wrong message to potential creditors, as it makes you look desperate to get credit from any available source.
Here's a valuable tip for anyone selling a home for less than they owe on it: What you're looking at is called a "short sale," and if you end up owing many thousands of dollars to your mortgage lender, you might get it in writing before the sale closes that the debt won't go on your record. Ending up with a big balance owed can be a black mark on your record, reportedly as costly as a foreclosure.
If a high credit score is important to you -- and for most of us it should be -- always consider how your financial actions will affect your score. For more information on credit scores, be sure to look at this guide from myFICO.com, which is the consumer division of the company that is responsible for the popular FICO credit score.