Don't let maternity leave ruin your credit score and ability to finance the many things growing families need. In the U.S. credit scores are the primary yardstick lenders use to qualify applicants for mortgages, car loans, and credit cards. Many couples in the family formation life-stage need credit to finance their first home, the new mommy minivan, new baby furniture, and many other items. But the U.S. lacks paid maternity leave, leaving two income families in a pinch, and setting them up for a life-time of financial struggle.
Credit Scores An Important Asset
Credit scores are an important asset for any family, but more so for growing families: those beginning to have children. Your credit profile provides a history of credit use that lenders use to determine if you qualify for loans, and if so how much you must pay to use their money.
Many factors impact your score, but the two most relevant to growing families are credit utilization, and on-time payment. The first, high credit utilization, usually proceeds the second, poor payment performance. High revolving credit utilization - the ratio of outstanding credit card debt to the credit limit - is an indicator that you might be tight on funds and heading for trouble. A poor payment history shows that in the past you had difficulties handling your money, and this history stays on your report for seven years.
Importance to Growing Families
Young couples planning to start or grow their families are often at the early portion of their work careers, and may not be earning as much as in future years. At the same time they may be spending more than they will in future years of items such as houses, cars, furniture, and food and clothing for the expanding family.
It is common for a growing family to spend more than it earns. And that is where credit comes in. The need for spending and credit is often quite acute during the months that mom is pregnant. You might have recently purchased a new home, and stretched to qualify for that dream house. Now comes the time to get ready for the new baby: paint the room, buy a crib, purchase maternity outfits, etc. The list goes on.
All these purchases have to be financed somehow. For many it means buying now, and paying later using credit cards. Which in turn swells your balances, your debt to credit ratio, and puts you in a tight spot if any disruptions occur.
Maternity Leave Risk
An unpaid maternity leave presents a disruption in income for many U.S. families. Most companies do not provide maternity pay benefits. For a normal delivery most women miss six to eight weeks before feeling well enough to return to work, and resume earning an income. And when they do, child care expenses may eat up much of her take-home-pay.
Remember all those credit card balance run up before delivery? Paying down those balances just became quite a bit harder.
Now imagine what happens during a high-risk pregnancy. Mom may miss several months of income prior to delivery to take bed rest to protect her infant's health. This equates to more missed income. Plus, there may be left-over medical expenses to throw in the mix. And, if baby requires care in the NICU expenses could really pile up.
Now just making the minimum payment could become difficult. And once you are late on a payment, that history sticks around for seven years - limiting your access for credit, and costing more if you do qualify.
Buying short term disability insurance before getting pregnant is the best way to create maternity income, keep your credit score high, and ensure future access to credit when needed, at affordable rates.