When it comes to estate planning and credit scores or consume credit issues, there is not a lot of overlap that most people need to worry about. Nevertheless, there are some basic credit issues you should understand if you are creating an estate plan. Also, if you have any questions about personal financial issues such as credit scores and how they might be affected by your estate plan, you should speak to us so we can provide guidance.
Credit Score Basics
A credit score is nothing more than a number that lenders give to potential borrowers that tell the lenders how responsible that person is, or has been in the past. Along with other factors, such as income levels, creditors will use credit scores to help them determine whether to give a would-be borrower a loan.
While there are perhaps dozens of kinds of credit scores, each of which uses a slightly different calculation, credit scoring companies use the same basic factors to determine an individual’s score. These factors are: history of timely payments, how much you currently owe, the average of how long you have each of your current credit accounts, the number of new credit accounts you have opened, and the variety of kinds of credit you currently have in use. The better each of these factors are, the higher your credit score will be.
Credit Scores and Joint Debts.
The most common estate planning issue that affects credit scores is the issue of joint debts and probate. When two or more people have a joint debt, both of them are responsible for making the debt payments in a timely fashion. Should either fail to make a payment on time, both account holders could see a decreased credit score because of the late payment.
This issue commonly arises when, for example, spouses hold joint credit cards and one spouse dies. If the surviving spouse wrongfully assumes that the deceased spouse’s credit card account was only in the that spouse’s name, the surviving spouse could see his or her credit score lower if there are any late payments. This issue can arise because a lot of people who have joint accounts mistakenly assume that they are single debtor accounts.
When a single debtor dies, the creditors have to seek remuneration from the probate estate, and cannot go after that debtor spouse or other family members. This shields those people from any credit or debt issues.
However, the same is not true of joint debtors. Should one joint debtor die, the surviving borrower is still responsible for making debt payments. If the surviving debtor fails to do so, his or her credit score will suffer.