Your Credit Score & Opportunities for the Future

What is a “Credit Score”? Why do I need a “Credit Score”? What is my “Credit Score”?

These are questions you should be asking yourself. A healthy to excellent “Credit Score” is necessary to open opportunities in your life such as buying a house, a vehicle, getting a loan or credit card, and feeling good about yourself.

There are several agencies and companies that offer credit score monitoring services. Be incredibly careful who you give personal information to regarding your social security number, debts, banking account and routing numbers, driver’s license number, etc. Look for legitimate companies by researching the Better Business Bureau, comments from other users, and if the customer service and support uses people from other countries that see your information, which could steal your identity. I personally recommend Experian. This is one of three credit bureaus who collect credit scores for lenders. Experian is linked with Transunion and Equifax. If you just want to check their services, Experian has a “free” plan to start. If you decide to purchase the upgrade, the cost is $4.99/month, which is very reasonable. This is the Experian link to view their plan. https://usa.experian.com/mfe/member/loginInterstitial

There are other companies that offer similar services such as Credit Karma; https://www.creditkarma.com/ Both Experian and Credit Karma offer ways to monitor, and they provide suggestions to build your credit profile. They offer credit card options, loans, insurance options, and other financial assistance.

Before you decide on a credit monitoring agency, here is information about why you need a good to excellent “Credit Score.”  First, take a hard look at your life right now.

What are your goals? Where do you want to be in 5-10 years?

• Do you want to own or rent a house?

• Do you want to buy a new or used vehicle?

• Would you like to travel or vacation 1-2 times a year?

• Do you need to remodel or repair your home?

• Do you need to build a shed or workshop?

Determine the debt accumulation in your household and how long it will take you to pay off a few bills. Separate the debts by recurring such as electric, phone, vehicle payments (You will trade in your vehicle, so this is recurring), trash, water, sewage, etc. Now look at the debts that have an ending date such as loans, credit cards, mortgages, loans, credit cards, etc.

Develop a plan to pay off the debts with an ending date. Include in your plan how to save money for emergencies and vacations, if possible. These are all important considerations when trying to raise your credit score. Creditors will see you as a good risk to loan money and to sell you a house or vehicle. Raising your credit score is something to be proud of. It will establish you as a responsible person who pays their bills on time and early when possible.

Understanding credit score levels is extremely important. Below is a FICO Score chart.

What does your credit score and credit report mean?

• Lenders determine if you are a low-risk or high-risk borrower.

• Credit scores determine if you have a responsible debt and credit history.

• Credit reports show if you have been late on payments and how many times.

• Credit scores determine the interest rate you are eligible for loans and credit cards.

• It determines if you are eligible for rewards, cash back, and loyalty programs.

• It determines if you need debt management services or consolidations.

• Credit reports provide why your credit score is low such as high credit usage, overdue payments, defaults on loans, tax lines, and bankruptcies.

Credit reports are guides through life that either make us eligible for loans, to update and improve our lifestyle, or show us that we need to work on paying our debts down to increase our credit score. You can obtain a free annual credit report each year by going to https://www.annualcreditreport.com/index.action.

There is a lack of life skill programs for our youth and young adults. Too many young people get caught up in credit card debt and overspending, then panic when collection agencies harass them for money. It is time to teach our youth, as young as the first grade, the value of the dollar. When they reach high school or the end of middle school, this is the time to teach them responsibility for their debts, learn about interest rates, credit scores and reporting, how to write a check so they aren’t addicted to swiping cards and money management. They need to learn the dangers of debt and having high interest credit cards or too many credit cards. All too often we receive spam in the mail advertising that you are “prequalified for $$$,” whether it is a loan company or a credit card company. These are temptations our younger generation need to stay away from if they want to keep good or excellent credit.

A "Fair" credit score is 580-669. You have reached the middle section of the credit scoring. You might qualify for a loan or credit card, but you might not get the best rates and terms, resulting in higher payments and shorter terms. There is a possibility that creditors will decline your application due to how risky the borrower seems.

A "Good" credit score is 670-739. Opportunities will open for you, offering reasonable rates and longer terms. Keep in mind that the higher the debt amount you have can cause your credit score to decrease. Watch your spending and manage your finances well. It will be tempting to borrow more than you need. Pay off your debt on time and early, then borrow more, if needed.

A “Very Good” credit score pushing to an excellent score is between 740-799. You should be able to walk into any loan company, apply for more than one credit card, even buy a house without any problems. The best way to manage your finances and money flow is to stick with your plan. Don’t borrow more than you need, and don’t overspend. Maintaining these credit scores is extremely important to improve your lifestyle and shoot for a perfect credit score. Remember, too much debt can decrease your credit score, so be careful and stick to your budget.

An "Excellent" to "Perfect" credit score is 800-850. Your dreams have come true. You have worked extremely hard to get a perfect credit score. It feels rewarding and satisfying knowing you have achieved the "ultimate goal" for yourself and your lifestyle. You can purchase anything your heart desires. However, you still need to be disciplined and stay within your budget. It’s like winning the lottery. If you spend too much, it will be gone, and you will need to start over again. Be smart when managing your finances to keep your dreams and goals alive.

It takes time and effort to build a good to excellent credit score. It needs to be earned by establishing credit, building credit, paying on time, paying debt off early, and keeping the amount of debt under control. Debt (credit from lenders) can increase your credit score. However, too much debt can lower your credit score. Be careful not to develop an unhealthy lifestyle. Manage your finances with a plan and goals.

Achieving a perfect 850+ excellent credit score is possible. You don’t need to be rich to have a perfect credit score. Most people with perfect credit scores are ages 57 and above. Normally, you do not see too many younger people with perfect credit scores. They are baby boomers, first home buyers, credit card over spenders, and have shown the inability to handle their finances. Around the age of 40 is when most people mature and take more responsibility for their life and finances. They have gone through life experiences, good and bad, and realize they want more, such as a new or used vehicle with a warranty to fix problems and not a beater or hand-me-down. They want to buy their first house, instead of renting an apartment. This is when they start to take their credit scores seriously, set goals and develop a plan. It is never too early to start setting goals and planning for the future. Actually, it is smarter to start early.

A good example of starting early planning and setting goals is ages 15-18. They are getting their first jobs and spending their own money, yet they still expect mom and dad to feed them, provide a home for them to live in, pay for their meals when dining out, and other miscellaneous things. To be a good, responsible parent, we need to teach our children during various stages of life how to manage their finances, build their credit to have a credit score to use in the future, and responsibility for their own wants, needs, and debts. There is nothing wrong with asking them for money to help with groceries, electricity, dining out, to buy some of their own clothes, paying for their hair cut and other miscellaneous wants and needs. This teaches responsibility. At the age of 17-18, it is good to start building credit using a credit card with a credit limit such as $300-$500. They are responsible for the payments to build their credit score.

A good budget rule to follow is:

Budgeting Rule for Youth and Young Adults

1.      50% of their money goes towards needs such as food, clothing, help with the electric bill, computers, telephone, etc.

2.      30% goes towards wants such as going to the movies, snacks, candy, beverages, dining out, party or amusement park with friends, gaming, any unnecessary items.

3.      20% is deposited in a savings account.

The “Golden Rule” of money management is “Spend less than you make.” Focusing on this rule will achieve a positive cash flow each month and keep spending within your budget.

Managing your finances, setting goals, achieving set goals, planning, and saving money for emergencies, school needs, a new house, a vehicle, or a vacation reinforces positive lifestyle changes and proud achievements. They will live on their own or have families to care for someday. Early preparation and "financial management" are good life skills to teach youth and young adults. It’s a valuable experience at an early age and a life experience for young adults, which is continued throughout the rest of their lives. They will provide this education to their children and grandchildren someday, as responsible parents.

I hope you have enjoyed this article and have learned the importance of having a good to excellent credit score, how it can be beneficial to your lifestyle, and an educational necessity. Thank you.