It’s a fairly standard setup in households for couples to divide the workload, with each person taking their share of different tasks to make sure that nothing gets missed. Many households choose to do the same with finances – and on paper, this can seem like a great idea. Split who gets the weekly shop, who pays for the electricity, who fuels the family car… but could you be harming your financial health and credit score by doing so?
What is a credit score?
Having a healthy credit score is key to your current and future finances. It will help with your access to mortgages and personal loans and keep you in good standing with any potential lenders. Your credit score is generally based on:
- Credit repayment history
- Number and types of credit accounts
- Length of credit history
- Credit use to available credit ratio
The better your score, the more likely you are to be able to successfully apply for loans, credit cards and mortgages. Additionally, more credit will be made available to you. This is because lenders will have more information to show you are a responsible borrower able to make regular repayments.
Should I split finances with my partner?
Although an even 50/50 split of all bills may work perfectly for some couples, it isn’t always possible. You should try to find a balance that works for you, and any split should be done based on what is right for your circumstances. However, make sure that the bills you or your partner are taking on are also fairly balanced when it comes to your credit score. If one person pays the mortgage, and the other covers utility bills and food shops for example, the person paying the mortgage will be building information on their credit score, whereas their partner will not.
We make all our repayments, why can’t I get good credit options?
Something often missed is that an account has to be in your name to be influencing your credit score, regardless of who is making the repayments. If your partner applies for a store card, but later on you are the only one using it and paying it off, this will have no effect on your credit score.
This is the same case if you move in with a long-term partner into their mortgaged home. Unless you are on the mortgage, you will not be gaining any benefit to your credit score – even if you are contributing to the repayments. Your partner will be getting the positive impact on their score – provided repayments are on time, as it is all being done in their name.
Which household bills affect my credit score?
Below you can see examples of bills that you may find affect your credit score, and some that won’t have any effect at all. This isn’t an exhaustive list, but you may see some familiar items on there that might surprise you:
Credit score affected by payments
- Credit cards
- Car insurance, if paid off monthly
- Homeowner loans
- Personal loans
- Store cards
- Phone contracts
- Car finance / leasing schemes – HP, PCP etc.
- TV and broadband bills *
- Credit card payments for Subscription services such as Netflix, Amazon Prime etc. *
* Although credit checks are not needed to set them up, the monthly payments for these bills can still sometimes help towards improving your credit score.
Credit score unaffected by payments
- Utility bills (electricity, water, gas) **
- Car insurance if paid off in one annual payment
- Product subscriptions such as magazines, monthly products etc.
- Non-credit card purchases
- Debit card payments for subscription services **
** Whilst making these payments will not build a credit score, missing the payments may have a negative impact to your credit history.
Only the person registered to an account (or jointly registered to, in case of a mortgage) will see the positive impact on their credit score from regular repayments. Likewise, if any payments are missed, it will be their credit score that may suffer.
Should we reorganise our finances?
It is important to remember that every situation is different. You definitely want to be building a healthy credit score, but be mindful that changing your current setup could have a negative impact.
Changing who is registered to a credit card by adding your partner may seem like a simple solution to build both credit scores, but there may be downsides. The new applicant will usually have to undergo a credit check to be added that will show up on their credit file, and if they are unsuccessful this may then impact both scores negatively.
There may also be fees involved that could outweigh any benefits, and changing credit card details (or switching credit cards) too frequently can be interpreted as a bad sign to lenders.
That said, improving your credit score will provide benefits to your current and future finances, such as better chance of successful applications, lower interest rates and higher credit limits on cards and loans. So, if the positive impact outweighs the negative impact, you may want to move things around.
Are there simple ways to improve my credit score?
There are simple ways you can ensure that your credit score is as healthy as possible.
- Prove where you live. Register on the electoral roll at your current address, even if you live in shared accommodation or with your parents.
- Make regular payments. Any accounts you have open can contribute to this as seen above. Keep up with repayments or consider setting up direct debits where you can.
- Build your credit presence. If you have a thin credit history, you may struggle to get credit. Check your eligibility for a credit builder credit card, as this may help you to overcome this.
- Keep your debt-to-credit ratio low. This is also called your credit utilisation ratio. If you borrow up to your entire credit limit each month, it suggests to lenders that you rely on credit to get through the month. This can be a red flag to creditors who may be put off lending to you. To keep your ratio low, try to only use 30% of the credit limit available to you.
- Keep your accounts stable. Moving home, changing bank accounts or making applications too frequently can make you appear more risky to lenders.
- Show a long credit history. The longer an account remains open, the bigger impact it may have. Older accounts with only a small credit proportion used can be particularly good.
Balancing finances can be tricky, especially when there’s multiple people contributing, but at Aro we want the best for your finances. Making the right decisions when it comes to bills and repayments can help both you and your partner’s credit score improve, and you could start reaping the benefits of a healthy credit score. This could include better interest rates on loans, more manageable repayment terms and access to newer lenders and their offers.
Check your eligibility and see if you could benefit from the financial products on offer, from a debt consolidation loan to help manage debt repayments to a credit builder card, designed to help those with a low credit score build it back up.