Thanks for coming back to the Planning for Your Purpose blog! The purpose of the blog is to introduce financial planning concepts that I come across every day. I want to start discussions about that will educate, benefit, and improve your financial life. Ultimately, to help you focus on your telos!
I’m intimately involved in credit scores and how they work because I help clients who need it in this area. So, what can having a good credit score do for you?
Why do I care about my credit score?
You may save money!
A good credit score will make your life easier. There’s no doubt about it. Whenever you need to borrow money, good credit just greases the wheels. It shows you’re a responsible adult and respect your financial good standing.
A good credit score will save you money. . . IF you use your credit, to obtain a loan, to borrow money to buy things, that then have interest accumulate. Good credit = lower interest rates = lower money paid in interest = save you money. Just that simple. Your credit score is one of the biggest factors in determining the rate of interest you’ll pay, and that can mean a lot of money over the long term.
Lenders always review credit score as part of a loan application and it’s a big factor in helping them determine what rate is appropriate for them to lend you money. Hypothetically, with good credit, you may be able to get a 30 year mortgage at 4.5%, as your credit score gets lower, the rate goes up, with really low credit scores you may have a hard time finding someone to lend to you at all.
For example, let’s say you want to buy a $250,000 house. That’s roughly around the national average right now for a house, at a 4.5% interest rate on a 30 year mortgage, your payment for principal and interest would be around $1,267 per month. If your credit is a bit lower and you can only qualify for a 6% interest rate, your payment on the same 30 year mortgage is around $1,499 per month, that’s $232 per month extra you’re just paying in interest for 30 years. That’s $83,520. Do you have an extra $83,520 lying around you want to give to a bank? No? I didn’t think so. That’s why it’s important to know your credit score and know what you can do to keep it good and keep it improving.
What’s the best way to get good credit?
From the start make sure to. . . keep your credit good.
It’s important. If you have good credit, it’s easier to keep it than it is to rebuild. It’s not impossible to fix credit and anyone can do it with discipline, but it takes TIME to rebuild. It can take up to seven years to get a totally clean slate.
Making poor credit decisions will haunt you, at least for a few years. Some credit decisions last months, some a few years, and the worst credit mishaps last seven years. The costs of thes will vary, depending on how much credit you use with a suboptimal credit score. If you have a bad credit score and you don’t need to use credit for a few years, you may be able to delay and FOCUS on rebuilding your credit before you need to use it.
Always let your credit score be your guide.
Your credit score is like your conscience. Really, like a way to monitor how you and your conscience did at managing your credit in the past. There’s a very specific way it’s measured, you can argue the pros and cons of it, but at the end of the day, it’s the system we have.
It’s there and you probably don’t pay much attention to it most of the time, but sometimes, you look. The way lending exists today, it’s the best and most common way of lenders knowing how credit worthy you are, which in turn gives them the input they want to know how much to lend you and how risky of a loan it would be.
How do you keep track of your credit?
One way is to check your credit score.There are a lot of services that provide free credit scores, your credit card company may even do it. Credit expert Mark Huntley helps run a website called creditknocks.com, devoted to helping folks rebuild their credit. Mark and his team co published “The Definitive Guide” to getting a free credit score, discussing many different ways to obtain your credit score. You can find it at: https://www.creditknocks.com/free-credit-score.
Another is to review your credit report.It’s the way to know view all of the credit you have and have had, if you can improve, and if there are erroneous items on your credit. It’s important if you notice any discrepancies to report these promptly to get them fixed as soon as possible. You can use credit reporting sites to monitor and notify you of changes to your credit report, but you should either use a monitoring service or monitor yourself.
Credit scores are vitally important when borrowing money. In our society, they are the primary way lenders have to judge your reputability in repaying your debts. It’s important to keep this as high as possible, if it has fallen, make sure to take prompt action to begin restoring or improving your score as soon as possible. It can take years to fix your credit, so make sure to stay on top of it and keep track of where you stand and where you want to go, just like with your financial plan 😀
Save early and save often. Having a current financial plan is the best way to know where you are financially compared to where you want to be. Your financial goals may be a long way off, but the earlier you start on that path, the easier it will be to get there or to make adjustments.
Call CERTIFIED FINANCIAL PLANNER™ Dennis LaVoy with Telos Financial at 734-468-3050 now to schedule a meeting to review your financial situation. Telos offers free consultations and would love the opportunity to meet with you and discuss this in more depth. Don’t forget to check my website and blog for more information as well as my youtube channel for videos.
Telos Financial is Plymouth, Michigan’s financial planner for Xennials, Millennials, Generation Xers, young professionals & their families. Financial adviser Dennis LaVoy, CFP®, CLU® founded Telos Financial to serve high income and high net worth young professionals. Dennis uses his experience, knowledge, and expertise to build lifelong relationships with his clients. He is the financial advisor for Ann Arbor, Detroit, and across the country to achieve their goals.
The views expressed are my own opinions and do not apply to every situation. Your situation may vary so make sure to consult a professional for advice prior to making any decisions.