YOUR MONEY: Couples become more candid about state of individual finances
Couples on Valentine's Day exchanged cards, kisses and -- if they're really serious -- chocolates. Why not credit reports? Once this would have been unthinkable. But modern lovers are less bashful about discussing finances than even just a few ye...
Couples on Valentine's Day exchanged cards, kisses and -- if they're really serious -- chocolates. Why not credit reports?
Once this would have been unthinkable. But modern lovers are less bashful about discussing finances than even just a few years ago, financial experts say. Thank the weak economy for this new openness.
More unmarried couples are entwining finances to help a partner through tough times or buying houses together to take advantage of government's popular first-time home buyer credit, financial experts say. And the Great Recession has raised the desirability of financially responsible soul mates, according to some recent surveys.
For instance, two-thirds of singles polled for PayPal's annual couples survey said they don't want to date someone deep in debt. One-third would delay marriage until a partner improved his or her credit score. And one out of 10 people say they were either dumped or broke up with someone over debt. (Women were more likely to end things with a partner in the red.)
In a separate survey by FICO, creator of the widely used credit score, about half of singles said they wouldn't date anyone with a score below 650. It takes at least a score of 760 to get the best mortgage terms. They say love is blind, but usually you can discover in a month or so of dating if a sweetheart is a big spender, tightwad or compatible with your money management style. As you become more committed to the relationship, here are some tips to navigate finances:
Show me yours ...
Exchanging credit reports can be highly revealing, much more so than a credit score, says Rod Griffin, who writes an advice column for the credit bureau Experian.
A score tries to predict if you're a credit risk to lenders. But the report reveals more relevant data, including outstanding credit card balances, late payments or a bankruptcy in a lover's past, Griffin says. Plus, reports are free yearly at www.annualcreditreport.com .
Demanding to see another's credit history on the first or second date would scare off most. But you definitely want to see a report and credit score months before buying a house or other major purchase together.
A weak report or credit score doesn't have to be a deal breaker. Instead, teach your partner how to improve a track record with creditors, says J.D. Roth, editor of the blog GetRichSlowly.org. Paying bills on time and keeping card charges way below the credit limit can help.
"Set an example. Offer suggestions in a non-nagging way," Roth says.
Honey, can you spare a dime?
Lending money can quickly change a relationship -- for the worse. The lender may resent a borrower who continues to spend while the loan sits unpaid. The borrower may chafe under not-so-subtle hints to pay up.
For the relationship's sake, consider the money a gift with no expectation of seeing it again, says Sheryl Garrett, a financial planner and co-author of "Money Without Matrimony." And if your loved one someday chooses to repay your generosity, all the better.
But if it is a loan, draw up a legally binding promissory note with the terms -- amount borrowed, when it will be repaid and the rate if you're charging interest, says Frederick Hertz, a lawyer and co-author of "Living Together: A Legal Guide for Unmarried Couples."
You may be tempted to help by co-signing on a mate's loan or mortgage. But this puts you on the hook for repaying the debt if your partner doesn't.
"It's like a minefield. You can make it through without things blowing up. But when they blow up, they blow up in a big way and you're in trouble," Roth says.
Maybe you can't imagine your significant other walking out on you or a debt. But it can happen, and a lender isn't going to forgive a loan just because the two of you have split.
"Be aware when you co-sign, that loan will appear on your credit history and will affect your ability to qualify for credit," says Experian's Griffin. Negative information stays on a record for seven years, longer than many relationships.
Depending on the issuer, you may be able to add a loved one who can't qualify for a credit card as an authorized user on your card. The two of you will share the credit history on this card, which can boost your mate's credit score if bills are paid on time, says FICO spokesman Craig Watts.
An authorized user can make purchases with the card but isn't liable for the bill. The primary cardholder is responsible for the debt, which again holds risks. Attorney Hertz recalls a case where an authorized user took out an $8,000 cash advance in retaliation of her partner's infidelity.
"One of the privileges of being unmarried is you aren't legally liable for your boyfriend's debt -- unless you voluntarily sign up," Hertz says.
A better option: Have your sweetheart use a debit or secured card tied to his or her bank account.
When buying a house or other property, write up a co-ownership agreement, Hertz says. Include how much each contributes toward the purchase, who pays the taxes, insurance or other expenses and how the property will be divided if you break up or one dies, he says.
Many unmarried couples are buying houses together to get the $8,000 federal first-time home buyer credit. Some couples put the mortgage and house only in the name of the most credit-worthy partner, even though the other is helping with the down payment or mortgage.
Hertz discourages this. But if you choose that path, have a lawyer draw up a written agreement to protect the interests of the partner not on the title, he says.
If you're talking about setting up house, approach it like a business deal, Garrett says. Write up a cohabitation agreement, which is basically like a pre-nuptial contract without the nuptials, she says.
The agreement should detail the financial responsibilities of each and what happens if the relationship ends, she says. For instance, what happens to the house or who gets first dibs on the apartment?
The document also can spell out whether one mate will provide financial support to the other after a break up, Hertz says.
Some couples going through this exercise discover they are better off living apart, Garrett says. If you do move in together, consider a joint checking account that both of you put money into to cover household expenses, she says.
Granted, promissory notes and heart-to-heart talks about finances would seem to dampen passion. But lawyer Hertz argues that these measures are romantic.
"To say to somebody, 'I don't want our relationship to fall apart because of your financial problems' is romantic," he says.
Love and money
Sure, pretty eyes and a great personality help people pick a mate. But recent surveys reveal that finances and money management are factors for many when choosing a partner:
--One-third of singles would not move in or walk down the aisle with anyone who didn't make a "fair amount of money."
--Forty-two percent feel a partner spends too much money.
--More than half of men and women would disclose their finances to a partner after dating one month
--Only one percent insist that a partner have a FICO score of 800 to 850, with 850 being perfect.
--Forty-five percent of couples fight about finances at least once a month.
--Couples now fight most about money and finances; last year, it was household chores.
Sources: PayPal 2010 Can't Buy Me Love Survey of 1,000 individuals; myFICO's Valentine Survey of more than 1,500 customers