By Amanda Morrall
Joint finances can be a blessing, but they can also be a curse, most damningly when things go wrong.
With close to half of all marriages ending in divorce, the plague of STD (sexually transmitted debt) has become one of the many hazards of love.
Regardless of a relationship ceasing to exist, both parties can be held jointly liable for one another's financial recklessness.
John Scott, general manager of credit reporting agency Dun and Bradstreet, has no cure for broken hearts or bank accounts, but suggests sound management of one's credit rating may stem the pain of an STD.
Checking the health of your credit rating amid the messiness of a break-up may be the last thing on your mind, but if retail therapy is a coping mechanism for the ex it may prove a prudent move, however heartless it might seem at the time. That's particularly true in situations where gambling or drug addictions are an issue and credit binges can spiral out of control.
In the eyes of the law -- and credit providers -- the debt till you part policy does not apply even once you separate.
A bad credit rating incurred by a free-spending spouse may be hard to shake, but the earlier it is detected the better, says Scott.
Under proposed changes to credit reporting methods in New Zealand (expected to be adopted by April 2013), borrowers will have the right to put a freeze on their credit rating, to prevent a total and irreversible ruin reputation.
A freeze won't make toxic debt disappear or erase a damaging credit rating overnight, but it will at least allow the innocent party to alert lenders to the situation and to prevent any further damage to one's credit rating from being done, explains Scott.
"As with all these situations if you talk to the credit providers they'll be in a better position to understand your individual circumstances. I can't say they'll look on it favourably, but perhaps they'll be more sympathetic and willing to work with you."
With 70% of all bad debt owing to one traumatic event (usually death, illness, divorce or unemployment) even the most fiscally responsible can wind up in debt town. Credit reporting companies count on it and until now have traded on consumer's financial foibles, or at least the footprinting of it all.
Incoming rules (awaiting final approval by New Zealand's Privacy Commission) will reshape the reporting parametres.
Whereas credit reporting agencies used to establish credit ratings on the basis of adverse financial circumstances and how much you owe -- including documented incidents of defaults, bankruptcy or civil court judgement -- the new rules will allow for a more "comprehensive'' profiling system.
- 40% of New Zealanders surveyed recently by Dun and Bradstreet did not know what a credit report was.
- 50% didn't know they could get one for free.
- 8% said they didn't want to do one because they were worried what they would find.
7 Comments
Buckle up - we are going to a rough ride and our credit ratings will be pooped..
On Aust Financial time this morning.
Black Friday..
Markets go into free fall because of fear and because people are forced to sell. But when it happens, the actual market decline creates its own self-fulfilling prophesy. Every business in the land suddenly becomes more cautious. A great many go into survival mode because they can no longer raise capital. Their employees also sense danger so consumers are affected.
There is now nothing politicians and central banks can do to avoid a recession in Europe and the US. As last night’s fall in American stocks gathered momentum near the close, it was clear that people were being forced to sell. There was also extensive shorting, which I will discuss below. If last night’s slump triggers a crisis in exchange traded funds (The global markets tonic that wasn't,August 3), then we are looking at a global event that much more serious than a recession in Europe and the US.
No one has any idea what risks the executive bonus driven Wall Street investment banks have taken, but trillions of dollars are involved the crazy casino style gambling games they have been playing. Today’s looming fall on the ASX means that Australia’s non-mining economy will also go into recession, but provided China holds it will be milder than most other countries in the western world.
The Reserve Bank should consider calling a special meeting next week to reduce interest rates. They certainly must act decisively on the first Tuesday in September because of the mass retrenchments that have now started. (Forget rate rises... now comes the employment shock, August 4).
The recessions in China’s two largest customers (the US and Europe) will put great pressure on China. If China continues anti-inflationary policies then the sharp decline in its major customers will cause China to slow down more than anyone anticipates. If that happens then commodity prices will fall sharply and we are looking at something much more serious for Australia.
Many readers will disagree with me when I link the market fall with events in the economy. Europe has been headed to a long downturn for some time. But today’s fall not only locks in that downturn but it makes it impossible for countries like Italy to borrow except at very high interest rates. Accordingly, we are going to have a banking problem in Europe of some magnitude. In many ways German shares lead this crisis because German banks are at the core of the problem.
In the US, once the Americans went along with the Republicans' Tea Party it too was locked into a severe downturn for a long time. I thought the resolution of the crisis might have seen a short rally (Australian shares jumped in anticipation) but then we would see a fall. Instead we went straight into free fall.
After a big sell-off like last night we may see buyers return as those who have shorted cover their positions. But people are now frightened so they will sell into the rally. The market fall stops when bargain hunters push shares up sharply and its holds. That could happen tomorrow or it may be an extended period away.
But the damage has already been done to the real economy.
Chairman - what the what? What was it about this article on credit ratings that made you spew your guts about the global financial debt crisis? Weirdo.
Anyway - good article Amanda. Time to get check that I haven't gotten any hidden financial STDs that I was not aware of.
Doesn't help young people with no history. And because adverse information drops off so quickly not much will really change in nz sadly. Dithering around the fringes is fine, personally I would go for the jugular and take a brute force approach - regulate the credit agencies to leave all adverse on a file until it is paid off. Simple really
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