Celebrate Life Moments
New parents, new purchases: Getting your credit in check
Review Your Finances Before Installing Your First Car Seat
When you find out you're expecting a baby, your credit may be the last thing on your mind. However, just as a mother-to-be prepares her body for baby by taking pre-natal vitamins, eating right and getting plenty of rest, it's a good idea to get your credit in tip-top shape, too.
"Kids are expensive, and those expenses aren't always predictable," says Beverly Harzog, a credit expert and author of The Debt Escape Plan. Creating a plan to build your credit or get out of debt creates a financial safety net for when unexpected expenses pop up.
Following these tips may help you save and put you in a better position to pay for things like college (it will be here before you know it!).
Build a Credit History
Young couples should begin building a credit history as early as possible, but certainly no later than when they start their family, says Josh Palmer, CFP, a wealth advisory specialist for Chase Wealth Management. "Having good credit can help you get the best rates on a mortgage when you realize that one-bedroom apartment is no longer sufficient," he says. That means using and choosing your credit cards wisely.
Harzog adds that getting a cash-back credit card that offers bonus rewards in categories like gas or groceries is often a good move for parents. "You'll certainly spend more on these things after you have kids," she says.
Paying Down Debt
If you're carrying a new bundle of joy, but also a mountain of debt, you might want to consider taking a "blizzard" approach, says Harzog. Start fast and furious by paying off a smaller balance and continue by paying off your high-interest cards in order. "Some people need the boost in confidence that comes from seeing a zero balance on one card."
No matter what, don't get intimidated – it's ok to attack it a portion at a time. "The most important thing is to just get started paying down debt, even if you take 'baby steps'," adds Pam Codispoti, President of Chase Consumer Branded Cards in Consumer & Community Bank. "For example, if you typically only pay the minimum on a credit card balance, try to add an additional $10 each month. Every little bit you add can contribute to saving on interest in the long run."
Schedule a Credit Check-up
Just like you schedule check-ups for your growing baby, you should also take good care of your credit score, says Palmer. Check your credit report as well as your FICO Score®, the score some lenders use to evaluate your creditworthiness, to make sure there are no errors, he says.
"And remember, when you check, it won't negatively impact your credit score" notes Codispoti, "Just like pediatrician visits that become part of any new parents' routine, regularly checking your credit score can help you stay financially fit so you can plan for your growing family's needs"
Consider your credit utilization ratio, the amount of credit you owe in relation to your available credit. This figure accounts for 30 percent of your FICO credit score. While conventional wisdom says you should keep your credit utilization at about 30 percent of your available credit, you may be able to raise your score in a few months by paying down your debt and maintaining a ratio of about 10 percent, says Harzog.
To make sure you don't miss a payment when your mind is on changing diapers and midnight feedings, set up automatic bill pay for credit cards and other accounts. "Late payments are the most damaging piece of your credit report," warns Palmer. Eliminating the possibility of missing a payment, whether you're in the hospital delivering the baby or just sleep-deprived and forgetful from caring for an infant, sets you up for a more secure financial future.
When you're expecting a baby, the cost of college may not be top of your mind, but it should be a consideration. It's smart to set aside a little bit for college whenever you can. "Every day you delay is one less day of savings," says Palmer.
Expecting? Time Is On Your Side
It may seem overwhelming to start a family if you're facing mountains of debt or have no credit history, but Palmer says time is on the side of new parents. "You don't have to do it all in one day. Your baby doesn't come home from the hospital and start running around immediately. First the baby crawls, then walks, then runs," he says.
FICO® is a registered trademark of the Fair Isaac Corporation in the United States and other countries.
Dawn Allcot is a freelance writer whose articles have appeared on financial websites that include Mint.com, AOL Careers, Yahoo! Finance and more. A Long Island mom of two, she raised her credit profile to “excellent" before starting a family.