A few months ago, I wrote about how common it is for widows to struggle with the reality of being on their own, financially and in most other aspects of their life. You, the surviving spouse have to re-establish life as an individual. This can feel overwhelming. Depending on how you and your partner handled your debt and credit, you may also be faced with re-establishing your life in the eyes of credit agencies, especially if your spouse was the primary borrower.
If you had credit in your own name — a car loan, personal credit cards, etc — accessing credit on your own shouldn’t be a problem. If all of your household debt, revolving credit, and credit cards was held jointly, retaining credit by yourself should be achievable since your name will be on the credit bureau files. You may not be awarded the same kind of credit terms as you had when your spouse was alive, but you should be able to get credit based on your credit worthiness.
What if your husband handled the majority of the debt, and you were only listed as an “authorized user” on credit cards, not a co-signor? Here, you may find your limited or non-existent credit history will make it hard to secure even a low-limit credit card. This can be particularly difficult for elderly widows.
Another wrinkle can come if you live in a province or state where community property laws apply, making the surviving spouse responsible for the deceased’s debts. If you’re in this situation, it’s advisable to use a good estate lawyer. You, the lawyer, and the executor of the estate will need to make a plan to fulfil any remaining debt obligations, before worrying about your own credit situation.
Check Your Credit Rating
A good first step to develop or improve your credit rating is to check what the major credit bureaus (Equifax, TransUnion, and Experian) have on file for you. For a small fee, you can access all the information recorded under your name, specifically your credit report and your credit score. You can also access this info for free using a third party provider such as Credit Karma.
Review your credit history and make sure it’s accurate. It’s not uncommon for errors and completely wrong information to show up on a person’s credit history which can negatively impact the credit rating. If you find an error, you can contest the mistake by following each agencies dispute procedures or following these general steps.
When checking more than one source, you may find your score differs at each agency. Why? The scores could have been derived on different dates. One score may be more current than another. Also, the agencies don’t use the same formula to determine a credit score. And, not all lenders report to all three of the major credit bureaus. So don’t be alarmed if you find your score varies a bit from agency to agency. Just be sure all the information in each report is accurate and current.
Strengthen Your Own Credit History
If you’ve checked your credit report and found no errors, but also found there wasn’t much credit history for lenders to base a decision on, use these steps to begin building your credit profile:
Switch joint bank accounts you into your name. Remember, keep one joint account open until the estate has been settled. Then you can close that last joint account or convert it to your name.
Set up a small amount of overdraft protection on your primary spending account (be clear on the fees and terms associated with it). Overdraft protection is like a “mini-loan” if you accidentally spend more money than what is in the account. When you make your next deposit, the money automatically goes towards clearing the overdraft. Assuming you never stay in your overdraft, this will look positive in the eyes of the bank.
Establish a savings account. Showing a bank you are capable of saving money, not just spending it, characterizes you as more credit-worthy in their eyes.
If the bank won’t give you a regular credit card, ask for a “secured” credit card. Here, the bank will want you to set aside a certain amount of money, let’s say $1000. The deposit is then security for the card. Your limit will be $1000. If you don’t make your payments, the bank will use the $1000 security deposit. By making your payments regularly and on time, you build a positive record at the credit bureaus. In time you should be able to trade your secured card for a regular credit card.
Use a co-signer. This person must have a good credit rating. If so, they can co-sign your application for a credit card or loan. Keep in mind, if you don’t the payments, the co-signor will be on the hook, which they won’t be happy about. Not everyone is going to be willing to co-sign for you. This is a position that requires serious trust, not to be taken lightly.
Improving Your Credit Score
If you have a credit history, but your credit score is poor, Take these steps to improve your credit rating:
As mentioned earlier, make sure your credit history is accurate. Your low score may be because of an error or outright fraud. If so, get that fixed!
Pay your bills on time. As obvious as that sounds, this is where most people slip up. Paying every month, but paying after the due date is still going to reflect negatively on your credit history with “late payment” notices piling up in your file. Set up automatic bill payments so that you never miss a due date.
Don’t max out your credit. Even when you pay the whole amount off, regularly pushing your credit to the limit gives the appearance of lacking financial discipline. A rule of thumb is to never exceed 30% of your available credit.
Know the difference between your credit card’s closing date and the payment due date. The closing date is the last day of the billing cycle. This is the time frame the card company tracks purchases, payments, fees, and interest on your account. Your statement is then generated on the closing date. The statement will show the due date for payment, different from closing date.
Here’s why knowing the different dates is important. Suppose you have month where the car breaks down, the dog had an emergency vet trip, and you had to buy a plane ticket to visit your dad who was suddenly hospitalized. Your card is now almost full. Try to pay some of it down before the closing date. For example, let’s say by November 1st your card is almost maxed out. Assume your closing date is November 10th and payment due date is the 25th. Making as big of a payment as you can before November 10th will prevent your card from looking maxed out at the closing date, the day your statement gets generated. This is viewed better to a credit agency than a maxed out card. Then pay off the remaining amount before the statement due date, to keep your credit history looking even better.
As a widow, these tips should help build your individual credit history and improve your credit rating. Remember, credit is a double edged sword. It can be an incredibly helpful tool to manage your financial life when used properly. When misused, credit creates financial pain. Careful consideration before obtaining credit and practicing discipline when using it will go a long way towards having a healthy relationship with credit.
