Many people think its just about building your credit but you also have to protect your credit. Whether you already have great credit or have been steadily improving your score over the years, you’ve worked hard to get where you are. It can be tempting to use your good score to help loved ones when they come to you for assistance, but doing so can damage your credit standing. If you want to protect your credit and financial future, you should think hard before you help someone out. Simply say no when there’s a chance your assistance could hurt your credit. Read these 6 tips before you agree to “help” a friend or family member.
1. Think Carefully Before Cosigning
If you have family members or close friends with bad credit, they might ask you to cosign with them on a loan at some point. Maybe they need to buy a car or get a rental lease and need your help. But the problem is that if they default on the loan or rental contract, their credit won’t be the only thing affected. As a cosigner, you’ll be expected to make any payments they default on. If you can’t make those payments, your credit will be negatively affected. For this reason, you should protect your credit by avoiding cosigning for loved ones, especially if you know they have a history of not making their payments on time. The only exception is if you can afford to pay for the loan yourself should the worst occur, and if you know your loved one is responsible with money and just needs help establishing credit.
2. Don’t Let Other People Use Your Credit Cards
Just as you shouldn’t give just anyone access to your good credit, you also shouldn’t let others use your cards. Maybe someone has asked you if they can become an authorized user on your credit card, or perhaps they want you to make a major purchase on your card and they promise they’ll pay you back. Either way, the debt is yours in the long run. If they suddenly can’t repay the amount they used on your credit card, you’re responsible for it. This means you either have to pay for the bill yourself or allow your credit to be ruined when you don’t pay it.
3. Don’t Rent with Unreliable People
If you need to rent a house or apartment and need a roommate, make sure you can trust him or her to help you pay rent on time every month. Otherwise, you’ll end up with late fees, and your landlord may even report you and your roommate to the credit bureaus once you’re more than a month late on rent. So if you have a best friend who is frequently unemployed and can rarely pay bills on time, do yourself (and your credit score) a favor and don’t rent with him or her–unless you can afford to pay the entire rent by yourself every month. And of course, if you own a house and you want to rent it out, perform a credit check on your new renters to make sure they have a history of paying bills on time.
4. Don’t Make a Habit of Lending Money to Friends or Family
The rule of thumb for lending money is to only lend what you can afford to lose. This means if you lend someone $500, you’d better not be depending on getting that back, because you probably won’t. If you have the money to lend, just give it as a gift if you feel the need to help a friend or family member. However, if the same people are constantly asking you for money, giving it to them may be enabling them. Instead of being a crutch for their bad money management habits, offer to help them make a budget or find a second job to pay their bills. This will protect your credit and go farther than lending them money every once in a while.
5. Build Up an Emergency Fund
Sometimes bad things happen that are out of your control, and you can’t help that. But what you can do is be prepared, and usually having extra money on hand is part of that. For example, maybe you picked a great roommate who can normally pay her bills, but she lost her job and won’t be able to pay rent this month. If you can’t cover the full payment, your credit could be affected and you might even be evicted. Having at least three months’ worth of expenses in savings will help you keep a roof over your head while your roommate finds a new job. Of course, it will also help you in case your own emergency occurs, such as if your car breaks down, you lose your job or you have a sudden health crisis.
6. Protect Your Credit by Focusing on Your Own Financial Goals
Having an emergency fund is a good start if you want to improve your financial security. But you should also have other goals when it comes to money. For instance, buying your own home is a great goal to have if you want to invest in your future rather than throw away money on rent every month. If you already own a house, upgrading it every few years is a good way to improve your investment, so you should save up money to do that. And if you have any debt–such as credit cards or student loans–you should have a plan to pay it all off so you spend as little as possible on interest.
If you need help improving your credit–or want to tell a loved one where to go for financial help–come to Ovation Credit Services. We offer a free credit consultation, so contact us today to get started!