Widow in 60s Locked Out of Credit Despite Assets: A Cautionary Tale & Solutions
By Priyashah, World-Today-News.com – Updated November 2, 2023
A recent financial dilemma highlights a critical, often overlooked aspect of financial planning for couples: individual creditworthiness. A reader, whose identity we are protecting, found herself unexpectedly locked out of the credit system after the passing of her husband, despite possessing ample assets. Her story serves as a stark warning and offers valuable lessons for anyone navigating shared finances.The Problem: Death,Debt,and a Credit Freeze
The woman,in her 60s,discovered a harsh reality after her husband’s death. As an authorized user on his credit cards, she was forced to close them upon his passing. Attempts to open her own credit cards where repeatedly denied by two major banks. The reason? A seemingly insurmountable debt burden – over $1 million – stemming from being a co-signer on her two daughters’ mortgages.
While her daughters have consistently made payments for six years, the co-signing obligation substantially impacts her debt-to-income ratio, a key metric lenders use to assess credit risk. Adding insult to injury, the banks refused to consider documentation proving her financial stability, including nearly $1 million in investments. They rely solely on credit report data, leaving her in a frustrating Catch-22.
Why This Happens: The Nuances of Credit & Joint Finances
This situation underscores a crucial point: credit cards are rarely truly “joint.” The primary account holder is solely responsible for the debt. Authorized user status doesn’t establish autonomous credit.when the primary account holder dies, the authorized user’s access is typically revoked, and they are not liable for the debt, but also lose the credit history associated with the account.
As financial expert Liz Weston, a Certified Financial Planner at NerdWallet, points out, this case is a “vivid example of why it’s crucial for each spouse to have one or two credit cards in their own names.” Failing to do so can leave a surviving spouse vulnerable to a credit crisis.
What Can Be Done? Navigating the Road to Credit Access
So, what options does this woman have? Weston suggests a multi-pronged approach:
Authorized User Status (Short-Term): Being added as an authorized user on her daughters’ cards is a reasonable first step to re-establish some credit activity.
Credit Union Consideration: Credit unions, as member-owned institutions, often demonstrate greater versatility in lending decisions than large, national banks. They might potentially be more willing to consider extenuating circumstances and assets not reflected in a credit report.
Mortgage Impact: Sadly, the co-signed mortgages will continue to negatively affect her debt-to-income ratio until they are paid off or refinanced. However, given current low interest rates, refinancing is unlikely to be a financially sound option for her daughters.
The Bigger Picture: Proactive financial Planning
This story is a powerful reminder of the importance of proactive financial planning, especially for married couples. Here are key takeaways:
Individual Credit: Each partner should maintain at least one credit card in their own name, used responsibly, to build and maintain independent credit history.
Co-signing Caution: Think carefully before co-signing loans, especially mortgages. Understand the full financial implications and potential impact on your own creditworthiness.
Documentation is Key: while banks may not always accept outside evidence of financial stability, having it readily available is crucial.
Regular Financial Review: Periodically review your financial situation with your spouse, including credit reports, debts, and assets, to ensure you are both on the same page and prepared for unforeseen circumstances.
Resources:
NerdWallet: https://www.nerdwallet.com/
Ask Liz Weston: https://asklizweston.com/
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