This One Thing Will Save You Thousands of Dollars

Most Americans are always looking for ways to save money, whether it’s cutting coupons, looking at the sale ads, or waiting for BOGO’s (buy-one get-one). However, this is chump-change. Sure, saving a few dollars here-and-there is great, but is won’t send you on the path to financial freedom. One thing can:

A STRONG CREDIT PROFILE

Managing your credit is one of the most important factors to a sound financial plan. By managing your credit profile, you reduce your risk to a lender, which means a lower interest rate for you. For the big-ticket items like a car or a mortgage, we are talking thousands of dollars, even tens of thousands.

A good credit profile looks something like this: an up-to-date credit report, a home with a mortgage, a steady job, and a history of paying a revolving loan like a credit card. Ideally, you’d like to end up with no revolving credit balances each month. Otherwise, you’ll likely be paying 15-20% interest. I realize this is easier said than done. However, if you become a regular reader of this blog, and take advantage of my soon-to-be-released financial blueprint, you will do it.

Check Your Credit Report Annually

By far the most important, and easiest, thing you can do is check your credit report every year. There is nothing worse than finding out something is wrong the day you apply for credit. Plus it’s FREE. I like annualcreditreport.com. It takes information from the top three credit reporting agencies without asking you for a credit card. It’s your responsibility, not the agencies, to make sure information is accurate. Negative information can stay on your record for seven years, bankruptcies for 10. Even if you don’t win a dispute, your side of the story remains on file. Always remember you have the right to know why you were denied credit.

Credit bureaus are often the first place a potential creditor, or even an employer, will look for information on you. Open your junk mail from creditors. Many times, they will make changes to your agreement in this manner (in small print of course). Be leery of those cash back rewards and other perks. They are only worth it if you are disciplined and pay off balances each month, which few of us do.

FICO Score

A FICO score assigns a numerical value to your credit worthiness. Many lenders use it as the number one determinant when deciding to extend you credit. FICO is a corporation that uses its software to calculate your score based on your credit history. Many credit card companies offer your score free, but you may have to ask. The following diagram list FICO score ranges.

If you are below 700, you need work. Consider delaying applying for credit until you get there.

I hope these tips help. I can’t emphasize enough how important a strong credit profile is to a sound financial plan.

Let me know what other finance topics you’d like to see discussed!

See you next time