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Credit, Financial Tips, Money Smarts, Peer to Peer Lending, Score

Don’t Let Love Hurt Your Credit Score

By Dvorah Rut · On February 16, 2017


Love hurts, they say. Let’s hope not. But love, or too much generosity can hurt your credit score, if you allow your passion to rule over your financial common sense.

Does Money Matter?

A newly released survey by Nerdwallet and OKCupid found that roughly 43% of respondents felt that the financial state of a potential partner was somewhat important, seeming to indicate that finances is not the paramount issue in a relationship. However, a 2015 Federal Reserve survey shows that people with a higher credit score tend to look for a partner equally positioned, and that when there is an imbalance, such as when one has a great credit score and the other has a poor score, the relationship tends to be short-lived.

There is another “love factor” and this has to do with the harm you can bring upon yourself and your credit score when you allow the passion of your love, whether it be for a partner, family or friends, get in the way of good financial judgment. Here are some of the pitfalls the experts warn us to look out for.

Making an Impression. In a new partner relationship or with friends, it can be tempting to want to pay for everything—pick up the tab, buy tickets for vacations, dates to the best restaurants, special gifts, etc. And, of course, you buy everything with your credit card. This might be okay if you can afford to pay the credit card bill when it arrives. If not, then you will begin to seriously impact your credit score. The same applies to parents who think that the best way to show their children they love them is to indulge their material desires and shower them with gifts.

A better approach is to find inexpensive, but meaningful ways to impress your new sweetheart or to have fun with your friends. For your children, the best way to teach them about financial management is to model it yourself. Talk to your children, spend time together doing fun things, share the activities in their lives. This will go much farther toward the goal of showing that you love them than buying whatever they want.

Co-signing. If you have a good credit score, it can be tempting to help out your partner, new friend or adult child to get that loan or credit card. A spirit of generosity can blind you to the potential risk to your credit score. The danger is that your responsibility does not end with your signature. Not only have you helped the person establish credit, or make a purchase, or obtain a credit card, but you are now also on the hook for making sure what was borrowed is repaid. If the person doesn’t make the payments, it reflects on you and your credit score is harmed. An additional factor to consider is that even if your partner, friend, or child pays the bill, the loan is listed on your credit report too and becomes a part of your total outstanding debt load. This could work against you if you want to pursue credit for your own purposes. Carefully consider the ramifications and look for alternatives, such as loaning the person a small amount of money to open a secured credit card. Do not allow your generosity “bind” you.

Healing a Broken Heart. Well, sometimes love does hurt such as when that “perfect” relationship turns out to be not so perfect after all. It can happen in other ways too, such as rejection from children, family members or your best friend. The typical medicine for the pain is to buy something. A little bit of self-pampering is not a bad thing and it can easily pick up your spirits. The danger is that self-pampering can get out of control and easily cost you thousands of dollars. Why to lose this much of your savings or to add to your debt? Instead, look for small, inexpensive ways to lighten your mood, and concentrate on your future—a future that includes financial freedom, free from debt. The heartache will be short-lived, but the damage you do to your finances could take you years to repair.

 

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Dvorah Rut

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