6 ways stay-at-home parents ruin their credit
Stay-at-home parents don’t get enough credit, and that’s true in more ways than one. When you’re busy caring for and raising a family, it’s easy to make simple financial blunders that can tank your credit score.
Part of the problem is time, says Jenna Rogers, a certified financial planner in California.
Between making the kids breakfast and tucking them in at night, parenting is a demanding job. “People get so busy with life that they don’t think strategically about their credit score,” Rogers says.
The problem is, that can lead to credit issues that can impact your ability to qualify for a loan, job or even a home in the future. Here are six mistakes stay-at-home parents can make with disastrous credit consequences:
1. Don’t get your own credit card. If you don’t carry a credit card in your own name, you’re missing out on a key way to build credit. “You have to have a credit card of your own no matter what,” says Cary Carbonaro, a certified financial planner and author of “The Money Queen’s Guide: For Women Who Want to Build Wealth and Banish Fear.”
Stay-at-home parents have been able to get cards based on income shared with a working spouse or partner since 2013, when the Consumer Financial Protection Bureau changed a rule to allow card issuers to consider household income for stay-at-home spouses.
You have to have a credit card of your own no matter what.
Certified financial planner and author
The change came after a Virginia stay-at-home mom, Holly McCall, started a petition after getting turned down for a Target credit card. The CFPB rule fixed an unintended consequence in the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. The law, meant to make it harder for college students to rack up debt, required consumers to show proof of income to get a card. That part of the law had the consequence of denying credit to stay-at-home-spouses without their own income; the CFPB rule created an exception for shared income.
It’s ideal to have three cards of your own, including one that earns rewards on groceries or household purchases, Rogers says. Having multiple cards gives you flexibility and more available credit, which can boost your score. “Try to bump up your amount of available credit as much as possible,” she says.
2. Open too many store cards. At the other extreme, opening a retail credit card every time you get offered 10 or 15 percent off your purchase is a bad move, Carbonaro says. Saving money is key when you’re living on one income, so stay-at-home moms and dads may be tempted to sign up for the discount. In addition to store cards’ super-high interest rates, you need to be concerned with lots of inquiries on your credit and new lines of credit can bring your score down – as many as 5 points each time. Multiple inquiries in a short time period can make you look like a bigger credit risk to credit score agorighms, and stay-at-home parents can fall into a retail card trap. “They don’t realize they’re hurting their credit score,” says Carbonaro. “They just think they’re saving money.” Instead, say no to the retail offers and be strategic about opening new accounts, she says.
3. Never use your credit cards. It’s a mistake to get a card in your own name to build credit, then let it sit in your wallet unused. Of course you want to avoid debt, but you need to show that you can use credit responsibly and keep the card from being closed by the issuer for inactivity. That’s why Kate Trout, a stay-at-home mom of two in Fairfield, Connecticut, and a blogger at MaternityGlow.com found an easy, safe way to use the card she opened in her own name. She pays her monthly cell phone bill with the card, then pays it off in full every month. “That greatly helped my credit score go up,” she says, adding that both she and her husband have “top-notch credit.”
Putting both spouses on an account really helps to boost the stay-at-home parent’s credit.
|-- Jenna Rogers
Certified financial planner
4. Buy groceries on credit in a pinch. Going from two incomes to one makes it harder to make ends meet, but repeatedly using plastic to deal with household budget overruns can hurt your credit. “It’s a huge mistake to look at a credit card as a stopgap in your life,” Carbonaro says. As you rack up debt, your score can drop. The total amount that you owe compared to your total available credit makes up 30 percent of your FICO score. That credit utilization ratio -- the percentage of available credit you’re using -- is very important, says Rogers, who recommends using no more than 15 percent.
If you have a budget shortfall, admit it and figure out what to do, Rogers says. She’s done budgeting exercises with one-income couples, helping them save $50 here and there by cutting premium cable channels and other unnecessary expenses. Even a $200 a month shortfall can lead to huge amounts of debt unless you deal with it head on
“It’s easy to not pay attention,” she says. If you’re a little short, consider a side job. For example, a stay-at-home dad client of hers earns $80 every Sunday providing day care at his church, she says.
5. Get your spouse to take out all the loans. Make the assumption that you need a job to apply for loans, and you rob yourself of a chance to boost your credit. Having a good mix of credit counts for 10 percent of your FICO score. The mix of credit FICO considers when calculating your score includes credit cards, installment loans, a mortgage and retail accounts.
“Putting both spouses on an account really helps to boost the stay-at-home parent’s credit,” Rogers says. Or, with good credit, you might be able to get a loan on your own. Personal finance expert and author Danny Kofke says his wife, Tracy, applied for and got a car loan on her own while she was staying at home with their two daughters, Ava and Ella. Her credit score of over 800 and their healthy bank account probably helped, he says. “They actually gave her the loan without me having to sign,” he says.
6. Engage in emotional spending. It can be a big change to go from business lunches to mac and cheese, from a fat paycheck to none, and that can lead to problems. Some stay-at-home parents suffer from feelings of low self-worth and depression that can lead to overspending, says Mary Gresham, an Atlanta financial psychologist. “Loss of contact with other adults, lack of a work identity and not earning money can be really hard on self-esteem, especially for stay-at-home dads,” Gresham says.
“The mall is a place you can go when you’re feeling lonely and want to get out of the house with small children,” Gresham says. “And it is almost impossible to go to the mall, grocery store or any other retailer and not buy something.” Some spouses spend in secret, she says. If you need help curtailing emotional spending, a financial therapist may be able to help.
You never know if circumstances will arise that will require you to have the ability to qualify for a loan or place to live on your own. Neglecting your credit can leave you out the cold, but by keeping your credit history in great shape, you are not only protecting yourself, but your family, too.
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