In Case of Emergency! (How to Keep a Clean Credit Report When Everything's Going Wrong)
If there's one thing that credit reports don't seem to account for, it's that life happens, which is to say that emergencies do arise - you lose your job, you get a divorce (or get married), or (heaven forbid) a spouse passes away. Having a clean credit report in case of such an emergency makes dealing with it so much easier. But maintaining a clean credit report as you deal with the emergency is another story altogether. How you maintain a good credit score and a good credit rating is the subject of this article.
Losing Your Job
First, determine how long you could get by (meaning: still pay all your monthly expenses including food, gas, and - most importantly to your clean credit report - your rent or mortgage and monthly bills). One simple way to do this is to tabulate the value of everything you own (savings, real estate, valuable assets, etc.) and subtract your debt (how much you owe). That's: Own - Owe.
Find out now how much severance pay your employer gives (if any) so that you can then best prepare for how much more you'll need to save to be secure for the next 3 to 6 months or more that it could take before you get another job.
The last thing you want to do is mar your good credit score or good credit rating by living off of credit while you job hunt. That's why establishing a 3 to 6 month emergency fund (preferably in an interest-bearing savings account, like a money market account) is key to surviving any emergency with your clean credit report intact.
Lastly, a word of advice far too few people hear or consider - if you lose your job, contact your creditors and let them know. There is a good chance, especially if they see that you have a clean credit report and a clean credit history with them, that they may grant you some temporary leniency in repaying your debts (such as reduced payments).
Marriage or Divorce
Whenever you're planning to get married, divorced, or even legally separated (and before you actually go through with it), get a copy of your clean credit report in hand and then notify all 3 credit reporting agencies of the impending life change.
In instances of divorce, the credit agencies will then start recording all transactions separately based on which spouse made each one. During the actual divorce, pay off the balances in full on all joint accounts and then immediately close them. Your lawyer could help you organize a debt-repayment plan with your spouse (or spouse's attorney).
Also, though it's horrible to think anyone capable of this, to protect yourself fully, make sure a vengeful former (or future-former) spouse doesn't try to ruin your clean credit report by accepting new credit card offers in your name.
Spouse's Death
In case of this terrible tragedy, also notify your creditors immediately. Discuss with them, in the interest of maintaining your clean credit report, closing all joint accounts and opening new accounts in just your name.
A legal release of debt obligation is also an option you can discuss with lenders. But, if you're only in the process of trying to obtain this release (even if you've been given the verbal nod), don't stop paying your minimum monthly payments until you receive the release in writing, lest you mar your clean credit report. Until the release is in your hand, you are still considered legally responsible for that debt.
Notify the Social Security Administration as well, as you might qualify for benefits that could be of great help right now.
If you live in one of 9 specific states, any account you opened in your name alone while you were married is considered "community property" and therefore a joint account. If you then die, your spouse would still be responsible for paying off that debt. Those 9 states are Arizona, California, Idaho,
Louisiana,
Nevada,
New Mexico,
Texas,
Washington and
Wisconsin.
With the exception of getting married (for most folks, at least) these life crises are not topics we generally like to give much thought to. Unfortunately, if we don't think about them before they happen, we could wind up suffering harder if and when they do. That is why, to keep a good credit rating, a good credit score, and a clean credit report, you need to prepare for those worst case scenarios now.
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