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MONEY TALK

How His-and-Hers Finances Can Lead to Joint Headaches

September 07, 2003|Liz Pulliam Weston | Special to The Times

Question: My husband and I have always kept our finances separate. We had both been out on our own for many years before we met, and it just seemed more comfortable that way. Now I'm having second thoughts.

He's run up some big credit card debts and isn't saving anything for retirement. We agreed to split our expenses, but he's continually running out of cash and asking me for "loans" that somehow never get paid back. I suspect he's also failing to pay some of his bills on time, but I've been afraid to ask.

Anytime I mention retirement or other goals, like buying a house, he gets mad and says if I'm worried, I can save more of my own money. I'm getting mad thinking about the two of us trying to live off the little I'm able to put away while he blows money on cars, stereos and other toys.

Answer: Here's something to make you madder. Your postmark indicated you live in California, which is a community property state. That means the debts your husband is incurring are probably your debts as well, regardless of any "understandings" between the two of you.

Some married couples do manage to separate their finances successfully, but most eventually decide to pool their money. It's usually more efficient that way, and it's much easier to attain your goals when you're both rowing in the same direction.

Your spouse has to be willing, of course. He'll have to compromise, put some limits on his spending and discuss any large purchases with you before making them. In other words, he'll have to start acting like he's married.

You may have some adjustments as well. You're probably not used to making financial decisions jointly, which usually requires lots of discussion and compromise. You also may be the best candidate to take over all the bill paying and probably the investment management.

The upside is that proper money management can ensure that you achieve your long-term goals, such as a home and a comfortable retirement, while still having some fun day-to-day.

If there's some reason you don't think your finances should mingle -- you're seriously considering divorce, say -- you'll want to talk to a lawyer about formalizing your his-and-hers finances so you're not on the hook for all his debts. If you want to merge your finances but are having trouble coming up with a plan, you can contact a financial planner for help.

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Properly Accounting for Fluctuating Credit Score

Q: I don't agree with your advice that paying off debt will help your credit score. Four months ago my score was 741. I have since paid off an $11,000 car loan and two credit cards, but my score dropped to 708.

I contacted one of the credit bureaus, whose representative told me that in some cases when you pay off a loan, your score decreases. So I said, "Are you telling me that if I want a high score I should always stay in debt?" and the representative said yes.

A: Obviously, credit bureaus need to do a better job of educating their employees.

You can't hurt your FICO credit score by paying off credit card debt or by paying off and closing an installment account. And you certainly don't have to carry a balance on your cards to get a high credit score. All that's according to Fair Isaac Corp., the creators of the FICO scoring formula.

Now, it's entirely possible that the scores you were given were not true FICO scores. The credit bureaus all use FICO when dealing with lenders, but they often give consumers a kind of in-house score that isn't a FICO and that isn't used in lending decisions. If that's the case, you shouldn't worry too much about any fluctuations, since nobody besides you will ever see this score.

If you were given a FICO, then the drop in your score must have had to do with other information on your credit report. Perhaps your report showed a higher balance on another credit card, or a lender stopped reporting an old, positive account, or you opened a new credit account.

You also can hurt your score if you closed those credit card accounts you paid off. Closing credit card accounts (as opposed to installment accounts, like your car loan) can often have a negative effect on your score.

If you really want to know what's happening with your FICO score, order your score from www.MyFico.com and look at the four reasons given for why the score isn't higher. That will give you a road map to improve your credit.

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Liz Pulliam Weston is a contributor to The Times, a columnist for MSN Money and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to ask_liz_weston@hotmail.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries.

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