Credit Scores and Estate Plans

The issue of credit scores and estate plans does not pop up very often, but it is an issue with which you should be at least somewhat familiar. When it comes to credit scores and personal financial issues, there is not a lot of overlap with most of the estate planning issues that people commonly face. On the other hand, there is enough overlap so that having a basic understanding of how these areas might affect you and your family can be worthwhile. Today we are going to take a look at credit scores and estate plans and what you need to understand about them.

Credit Scores

A credit score is a number that creditors or lenders used to determine whether an applicant is a reliable borrower. Creditors use these scores, along with other pieces of information, to decide whether to give an applicant a loan, as well as to determine the kinds of terms they offer the borrower.  The higher the score the better a person’s credit, the better a person’s ability to obtain new lines of credit will be and the more favorable the loan terms (interest rate level, for example) will be.

Though there are numerous types of credit scores available, and different lenders use different scores, all scores are basically calculated using the same essential factors. These factors include the borrower’s history of payment on other loans, the average length of time each of the borrower’s credit accounts was open, the amount of debt the borrower has, the types of debt the borrower has, and the number of new lines of credit to borrower has opened or attempted to open.

Estate Plans

Estate plans have very little to do with consumer credit issues. An estate plan is a collection of legal tools or documents that allow you to control what happens to your estate in the event you die or become incapacitated. Estate plans include tools such as revocable living trusts, advance directives, and last wills and testaments. Anyone can create an estate plan regardless of his or her personal credit score or financial situation.

Credit Scores and Estate Plans

The main issue that arises when discussing credit scores and estate plans together comes in the context of probate and joint debt repayment. Let’s say, for example, that you and your spouse both have credit cards that each of you tend to use exclusively. While each maintains your own credit card, and makes repayments on that card, you signed up for the cards together, and are considered joint debt holders.

In the event one of you dies the other will still be responsible for making timely payments on the credit card even if you never use it or never paid for it yourself in the past. This is often an issue because spouses can wrongly assume that the lines of credit a deceased spouse had must be paid through the deceased spouse’s estate. While this is typically true of individually owned debt, joint debts remain the responsibility of both debtors to repay even if one of them passes away.