Three Credit Assumptions that Could Ruin Your Finances

Since your credit is so important, it's important to avoid making assumptions that could ruin your finances.

It's easy to make assumptions about our finances. Many of us do it all the time. This is especially true when it comes to our credit. It's easy to make assumptions about credit, and then find out, later, that we've made mistakes that not only impact the credit situation, but that also bleed over into our wider finances.

Your credit matters when it comes to your finances. Good credit can mean savings on loans, true, but it can also influence your insurance rates, and even affect the way telecom providers manage your service.?What's in your credit history can even impact your chances of getting some jobs.

ruin your finances

So, as you plan your next financial move, avoid making the following assumptions, since they could ruin your finances.

1. Divorce: The Judge's Decree Absolves You of Certain Credit Obligations

There are plenty of money mistakes that can be made when it comes to your divorce. One of those is assuming that all the debt is squared away once the agreement is finalized. Whether you take the mediation route, or whether a judge divides your assets and debts, the reality is that the legal situation doesn't automatically carry over to the financial reality.

If you have joint debt, you are?both responsible for it, in the eyes of creditors. The judge may tell your ex to pay off your joint credit card, but if your ex doesn't, you are in trouble — because it's still?your debt as well. Even worse is if your ex keeps using the credit card to run up bills. This can make it look as though you have more debt than you think (because you do) and can impact your ability to move forward with your finances.

On top of that, if your ex stops making payments, the creditors can come after you for the debt?because you are still associated with it.

One of the most important things you can do financially, when you know that a divorce is coming, is to achieve financial separation as quickly as possible. Close joint accounts. Then, transfer balances to the person who is supposed to be responsible for them.

You need to be involved with your finances right now, so you know what accounts you have, and what accounts are joint. You should even have an idea what accounts your partner has. You don't need to be in your partner's business, but you should have a general idea of where the accounts are — and watch for signs something is being hidden from you.

2. Non-Credit Obligations Won't Show Up On Your Credit Report

Many people mistakenly think that if you didn't borrow for it, you don't have to worry if you miss payments, or let an obligation slide. Unfortunately, this isn't the case. Even non-credit obligations can impact your credit, and come back to haunt your finances.

One of the reasons that non-credit obligations can be problematic has to do with the fact that many of these accounts are turned over to collections. From your improperly canceled gym membership to those unaffordable medical bills, if you go too long without making a payment, your account could end up in collections — and that could cause you credit and financial problems down the road.

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In fact, there are some banks that check your credit before you can open a savings or checking account, so your poor credit as a result of non-credit obligations could make it hard for you to get the account that you want.

3. You Should Avoid Using Credit Unless You Absolutely Need It

One of the biggest assumptions about debt is that the less you use it, the better your score will be. As nice as that would be, the reality is that your credit history relies on your regular and?responsible use of credit.

Avoiding credit can just mean that you don't have enough of a history to provide you with a score when it really matters. While you clearly don't want to go crazy — especially with “bad” consumer debt — the reality is that you need to use credit if you want to build a good history and reap the benefits.

The fastest way to build credit is with the help of a credit card. But this doesn't mean that you have to carry a balance. Get a good credit card, use it in conjunction with your regular spending plan, and then pay it off. You'll avoid interest charges and build your credit.

Remember: Sometimes having no credit can be just as bad as having bad credit. Those who use your credit report and/or score (whether or not you think it's fair) consider your credit an indication of your level of financial responsibility. If you don't have a credit history, the financial services provider doesn't have a way to evaluate you.

Also, be careful about canceling credit cards. It's a persistent money myth that canceling a card will boost your credit. If you aren't careful, canceling a card can actually lower your credit score.

Bottom Line

Don't make assumptions about your credit — and about your finances. Do the research, and make sure that you understand the ins and outs before you make a financial commitment. You'll be less likely to ruin your finances.

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