Credit health is an individual endeavor—in theory, anyway. Although your credit score is based on personal information alone, the truth is, the financial habits of friends and relatives can affect your stability as well. Read on to learn how to minimize the influence of others’ financial habits on your credit and savings.
- Say no to cosigning. We’ve talked about the dangers of attaching your credit to another person’s loan. A loved one with poor credit will need a cosigner to qualify for an auto or other personal loan, and may even ask to become an authorized user on your credit card. Cosigning is a kind gesture, but it isn’t always wise. Vouching for a relative on a financial agreement means you are responsible if they fail to make payments. This consequence has the power to strain your budget and damage your credit score as well.
- Depend on those you trust. Despite the will to remain financially independent, most of us rely on others to survive at some point in life. The perfect example is renting an apartment with a roommate. Suppose the rent is $1,600 per month. Although you pay your half on time, your roommate often forgets, resulting in a $35 late fee. To make matters worse, the landlord has threatened to report late payments to the credit bureaus, putting your credit at risk. The moral: When it comes to mutual agreements and loans, stick with those you can trust.
- As we learned from the rent example, sometimes it’s impossible to safeguard your credit from the actions of others. That’s why it’s important to build an emergency fund. Although you aren’t responsible for your roommate’s share of the rent, paying the landlord on time is essential to maintaining a positive history. Meet your obligations and deal with your co-borrower privately.
- Respond mindfully and offer solutions. In addition to cosigning, friends and relatives may want things from you: financial support, a place to live, another “loan,” etc. These situations are difficult, especially if you cannot (or should not) help when they call. Good news: you are not the only solution to their problems. Help by brainstorming ideas and offering long-term solutions. For example, if your best friend can’t make ends meet, offer to help her create a budget and identify where her money is going. This strategy provides more support than a temporary loan.
- Remember your goals. When dealing with others’ financial woes, it’s important to remember your own goals surrounding:
- Debt reduction
- Short and long-term savings
- Home buying and maintenance
- Education planning
- Overall credit repair
Use your resources to tend to these goals first. Saying no may not be easy, but sometimes it’s necessary. Think carefully before agreeing to put your credit health on the line. And if you find yourself in a situation where your credit has been negatively affected, contact Lexington Law Firm for a free credit consultation.