Categories: credit, debt
“I can’t speak for them, of course, but I believe that most economists would accept the view that, while you sometimes can make a score by sheer luck, you can’t do it constantly, unless you’re willing to put the resources in. “ Merton Miller
There is minimal luck in achieving a high credit score! As in most life endeavors, even maintaining strong credit takes effort.
MAIN TOPIC: I’ve Got a Secret
When I first started buying real estate, I had no idea what a credit score was. People didn’t talk about credit scores and I just assumed there was ONE interest rate, depending on the term of the loan. In other words, if you took out a loan for 30 years, then you got the banks prevailing interest rate. Now, I did understand that each bank or lender banks might charge a slightly different rate, but I had no idea that the rate varied based on the CREDIT SCORE of the borrower! As ignorant as I sound today, back in the last century, most borrowers didn’t know much about the ins and outs of the CREDIT SCORE.
Did you know?
You might earn $500,000/year and have lousy credit.
Even those of us who pay off our cards every month might not have the top credit scores!
According to the Consumer Federation of America, only 31% of consumers know what a credit score means. So don’t feel bad if you are one of the 69% who are clueless about them.
PRACTICAL APPLICATION: Here are the Key Facts about your Credit Score!
What is a credit score?
- It is a number used by lenders to determine how trustworthy you are to pay back a loan. The more trustworthy you are, the lower the interest rate on your loan.
Where can I find my credit score?
- My fico.com. You’ll probably have to pay for it.
Why should I care about my score?
- You can save money when you borrow
- Be more competitive when vying for a job
- Maybe save money on insurance
- Qualify to rent an apartment
How much could I save on a mortgage with good credit?
- FICO score 760-850; Interest Rate 5.82%: Monthly payment $1,764
- FICO score 500-579; Interest Rate 10.31%; Monthly payment $2,702 (30 year fixed mortgage rate for $300,000 loan)
- Difference between best and worst score; almost $1,000/month
What goes into a FICO score?
- 10% Type of credit used
- 10% New credit
- 15% Length of credit history
- 30% Amounts owed
- 35% Payment history
How to get and keep a good credit score?
- Get your credit report from annualcreditreport.com. It’s free. Fix any mistakes by following the credit bureaus’ directions.
- Pay your bills on time.
- Only use 10% of your available credit.
- Pay off your excessive debt. See why here.
Where did you get this information?
Most of this information came from 1-2-3 Money Plan by financial columnist, Greg Karp.
ACTION STEPS:
Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.
- Get your free credit report
- Pay off your credit card every month.
- If you can’t pay the bill in full, pay more than the minimum and don’t charge any more until it is paid off.
@Darren-Good question. Likely my rate has always been pretty good since I have always paid my credit card bill in full each month and been pretty smart about credit. But I don’t know for certain!
@teeth – There is certainly a lot to know about this topic. It certainly important to know as much as possible about credit and its impact.
@onlineslots-I appreciate all of your comments.
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Best regards, Barb