credit score – Don't Eat Cat Food in Your Old Age

A friend recently left a 30-year marriage and came back to Canada after following her spouse to the US and raising their children there. They’re sorting out who gets what and to cover the gaps in between, she applied for a credit card in her own name.

She went to the bank she’s been with for decades, the one that holds her retirement savings, the one that held the two mortgages she paid off with her spouse. The bank rejected her. Now that she’s single, she doesn’t meet their minimum income requirements. Her years in the States mean she doesn’t have a Canadian credit rating.

Ouch.

Now, she’s sorting it all out, but going through a divorce is hard enough without unnecessary financial strain. You’re already resorting your identity – you may not have realized how much your financial identity will change too. (Note to self: write future blog on banks’ archaic paternalistic ways.)

But just as money is a common cause of arguments for couples, financial insecurity is a big fear for single-again women. It’s especially hard when you have children to provide for.

While you’re dealing with the emotional fallout, you have to sort out the practicalities – where are you going to live? What are you going to live on? What will your future look like? Images of cardboard boxes and tins of cat food may flash before your eyes.

No one stands at the altar thinking, “Is this the man I want my children to visit every other weekend?” There was a time women married their pension plans. But not anymore. Having your own bank account, credit card and credit history of your own are essential to establishing your financial identity. You don’t want to need a co-signer when you’re a grown-ass woman. (Also, holler to Virginia Woolf’s A Room of One’s Own.)

There’s too much to cover on this topic in just one blog post, but I will offer two divorce-specific tidbits. One, Canada doesn’t have alimony, we have spousal support, and it’s designed to help you get back on your feet, not live in comfort the rest of your life. (Child support is set according to the spouses’ incomes, so it’s less negotiable.)

Two, you can apply to share CPP credits for the time you were together, which means you may receive more when you’re retired. Future you will thank current you for doing the paperwork. Remember, the goal is – say it with me now – Don’t eat cat food in your old age!

Regardless of your relationship status, having a solid financial foundation can only be a good thing. Like I always say, diamonds are nice, but a girl’s best friends are really contraception, compound interest and a good credit rating.

Don’t worry, there are many good wines that are still affordable. So crank up “I Will Survive” or “I’m Still Standing,” and cheers to single-again you!

A question came up in conversation recently about the difference between overdraft and a line of credit. If you’re not sure, I hope this is helpful.

Overdraft protection covers you if you have too much money coming out of your account. Say too many bills go through all at once and your account dips below zero. The overdraft will cover you until you can top it back up. That way no cheques bounce and you save the non-sufficient funds charges (and all that hassle!). Sometimes banks charge fees, interest or both. You have to set it up with your bank first though, it’s not automatic.

A line of credit is borrowing money from a pre-authorized credit account. It’s like a credit card that is just there like a bank account. You can dip into it when you need to. Usually it has good interest rates (low), like prime plus one.

What’s prime all about? The prime rate is set by the Bank of Canada. Banks have money flowing in and out just like your account does, and to tide them over until their thousands of accounts settle every day, the Bank of Canada loans them money at a set interest rate — the prime rate. Banks usually use that rate as a guideline and add extra to it when they loan out money — that extra is profit.

What rate you get depends on your bank, your negotiating skills and your credit rating (or credit score). Every time you use credit, you’re building your rating – the information gets filed automatically. If you’re renting an apartment, arranging a mortgage on a house or applying for a credit card, all those companies are going to check your credit rating to see if they can trust that you’re going to pay them on time.

It’s a good idea to check your rating every now and then, because mistakes can cost you. Check it for free at Equifax or TransUnion. A bad credit score means you’re going to pay more interest, because the company loaning you money is taking a chance on you and they want to be compensated to make it worth their while.

Talk to your bank about what they offer and how overdraft or a line of credit would work for you. Of course, if you have issues with overspending you might need one (overdraft) more than the other (another credit source!).

Don’t let the bank talk you into more credit than you need either. That’s like getting the meal deal for only a little bit more, which is tempting, but you know the fries and cola aren’t good for you.

(Note to self for future blog topic — how a budget is like a diet.)

So there you have it, some basic definitions of a couple common financial tools. If you have any suggestions for other explanations you’d like to see, please let me know in the comments.

Happy money-ing!

Tag: credit score

For all the single-again ladies

What’s the difference between overdraft and a line of credit?