Imagine being 83 years old, managing your finances for decades, paying every bill on time, and suddenly being told you have zero credit history.
We have seen many such cases over the years, and it can cause real stress and angst that could have otherwise been easily avoided had proper steps been taken when both spouses were in good health to build independent credit histories.
The Importance of Independent Credit History
Such situations are more common than one may think. For instance, a widowed or divorced woman who has only ever been an authorized user on her husband’s card may discover she has no independent credit file in her own name. Despite being an authorized user, the bank will immediately close the card once they receive the notification of death, as the account is technically owned by the decedent.
Even if she is the model of financial stewardship, she won’t have an established credit score. If her husband’s card is closed or she is removed as a user, she might find herself without a credit card and credit history. Then, when she applies for a new card on her own, the bank will likely deny her application due to insufficient credit activity. This example and many like it reinforce the importance of taking a disciplined approach to building an independent credit history as outlined below.
4 Steps to Build and Protect Independent Credit
- Credit Reports: The first step is to check your current credit report and keep an eye on it as you begin building your credit history. By law, you can review your files for free every week.
- Authorized Users: Having someone you trust add you as an authorized user is likely the fastest way to boost your credit initially, as their good usage is reported to your credit history. However, the inverse is also true, as you are also vulnerable to any negative impacts on their credit.
- Secured Credit Cards: If you need to build credit from scratch, applying for a starter “secured” credit card backed by a savings account deposit is highly effective. Look for lenders offering preapproval via a “soft pull,” so your score isn’t temporarily decreased by a formal hard inquiry or credit check.
- Low Utilization & Pay in Full: Using less than 10% of your credit limit and paying off the balance before the due date each month will begin building your credit. From there, it generally takes between 6 and 12 months of on-time payments to have the score necessary to upgrade to a better card.
Setting Up the Next Generation
An active approach to building independent credit can also have a meaningful impact for children who will soon leave the nest and have more financial independence. Building credit can take time, so starting early can set children up for success and quickly move them towards a higher credit score with relatively little effort. This will allow them access to better cards or loans in the future based on their own credit history.
Ultimately, building a credit history can be tedious and frustrating, but taking the time to ensure that account ownership is in order and that you start establishing an independent score early will make sure you are prepared and protected for whatever life brings. Therefore, as a baseline, we recommend that married couples each have at least one card where they are the primary account holder.