How To Have “The Frank Talk” About Credit

There’s nothing more awkward than having to initiate a deeply personal conversation with a life partner, significant other or family member. And few topics are as anxiety-producing as money, debt and credit scores.

Discussing them can be downright painful – so oftentimes we don’t – or we stop short of full disclosure. In fact, one in three adults who have combined their finances in a relationship admit to lying to their partner about money, according to a 2014 survey by the National Endowment for Financial Education. And 76 percent of those surveyed said the financial deception has damaged their relationships.

Do your credit scores and reports reflect a “misspent credit past” that you need to confess?

Or perhaps you fear your partner has “credit skeletons” that may come back to haunt you both. No matter which side of the table you’re on, it’s an uncomfortable place to sit.

Tips to help initiate a productive conversation about credit:

Timing and location matter! Many of us launch into tough conversations when we’re frustrated. Because we don’t consider whether it’s the right time or place, it’s often counterproductive.  Decide together when to set aside time to have “the talk” so no one is blind-sided. And do it in private. Discussing a sensitive subject such as credit is even more difficult in a restaurant or other public setting.

Come clean. Don’t make excuses. Your credit history doesn’t go away. If you have mismanaged your credit and your scores are paying the price – it’s best to get it all out in the open before your partner is also left holding the bag. We’re talking full disclosure. Whether it’s late payments, accounts in collections or maxing out your credit cards – the sooner you admit it and own it – the sooner you can begin to fix it, together.

Don’t judge. Stay positive. If your partner has made some poor credit decisions that have damaged their scores, don’t dwell on what they did wrong. What’s done is done. Instead, talk through ideas and solutions to help them move forward – and ensure the same mistakes aren’t repeated!

Where to look and what to do:

1. Pull your credit reports and scores from all three bureaus: TransUnion, Equifax and Experian. If you both have good credit scores, your conversation about maintaining them and setting financial goals will be much easier. If one or both of you has lower scores that need some work, it’s time to dig deeper.

2. See what’s driving your credit scores. There are five main factors that go into calculating your credit scores. The more you know about how you fare in each category, the better equipped you will be to take the actions you need to improve or maintain your scores. Closely examine your:

  • Payment History (40%): This category carries the most weight in determining your scores. Your top priority should always be to make your payments early or on-time, every time.
  • Outstanding Debt (35%): The amount you owe doesn’t automatically raise your risk level with lenders, but using too much of the credit extended to you can lower your credit scores. Example: If you have three credit cards with a total credit limit of $20,000 and you are using $10,000 (50 percent) of that limit, your credit scores will be dinged. Your scores will fare better with credit utilization percentages of 30 percent or less.
  • Account Types (10%): Evaluate the diversity of your credit “mix.” Do you have revolving accounts (credit cards, retail cards or gas cards) and installment accounts (a mortgage, auto payment or student loan)? A nice mix is a good thing.
  • Credit Age (10%): A short credit history could have a negative effect on your credit scores, but it isn’t a deal breaker if the accounts you do have are paid on time.
  • New Activity (5%): A flood of newly opened lines of credit is generally a red flag to lenders that you may represent a higher risk of paying late or defaulting on debt – so tread lightly with opening new accounts.

3. Check for outdated information. There are set time frames for how long negative information can legally remain on your credit reports, so monitor your reports regularly to ensure you aren’t being penalized for old data that should’ve fallen off. If it’s older than the time frames listed below, address it promptly.

  • Late payments, accounts in collection, civil judgments and paid tax liens can stay on your credit reports for seven years.
  • Bankruptcies can stay on your reports for 10 years.
  • Unpaid tax liens stick around for 15 years.

4. Are there errors on your credit reports? Your credit reports are only as accurate as the information provided to the credit reporting bureaus by the creditors you use. Compare your information across all three credit reports carefully for errors or discrepancies in accounts and personal information.

Things to look for:

  • False delinquencies, inaccurate account status and limits, duplicate account listings, accounts that don’t belong to you, accounts that are incorrectly listed as being in collection or charged off.
  • Inquiries into your credit from companies you don’t recognize, or that were not authorized by you.
  • Bankruptcies, tax liens and other judgments that don’t belong to you.

5. File a dispute to have your credit reports corrected. If you spot any mistakes or outdated information on your credit reports, file a dispute immediately with the credit reporting bureaus to help protect your scores. You can also have a personal statement added to your credit reports if there are special circumstances surrounding your credit history.

Think team!

Two heads really are better than one. Brainstorm a plan to reduce your collective debt and shape up credit scores – then work together to put it into action and hold each other accountable. Keep in mind that your credit scores fluctuate as credit is used, debts are paid, new credit lines are opened, hard inquiries are made, negative information falls off and credit histories lengthen.

Bottom line.

Financial issues carry a great deal of emotional weight. People are afraid of what their partner is going to say, how they will be judged, or that they may be embarrassed. Once the skeletons in the closet have been revealed, it will take time (and patience) working together to achieve your credit goals. Continue to monitor your credit reports and scores regularly to help you catch unauthorized activity – and track your progress.

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