Why should credit be important for you in 2015?
It’s a few days after Thanksgiving and people all over the country are shopping deals to their hearts content, and rightfully so. Retailers have had the doors opened since 12a.m. the night of Thanksgiving, in an effort to encourage consumers to come in and spend money on price reductions specifically targeted for the day after Thanksgiving. The term “Black Friday” signifies the day that retailers revenue’s head in the “black”, or in the positive, from all of the generated revenue on this one particular day. But not everyone is shopping with cash, most are using credit cards to make these purchases and during this holiday season companies are more prone to extend you a line of credit so you can shop as lavishly as your credit limit allows!
So what do you need to know about credit going into 2015?
The shopping spree begins with your FICO score. FICO stands for Fair Isaac Corporation. FICO is a business analytics company based in San Jose, California among several that uses business software to calculate your credit score. Your FICO score can range between 300 and 850. Higher scores indicate lower credit risk. According to the credit reporting website www.myfico.com each individual actually has 49 credit scores for the FICO scoring model because each of three national credit bureaus, Equifax, Experian and TransUnion, all have their own database which organizes and ranks your data in different ways. The system is not uniform by any means, which is why it is quite common for lenders to come back to you with different scores from your report. Lenders do not pull your score from the same place every time a report is ran.
Credit data is grouped into five primary categories:
1. Payment History
2. Amounts owed on debts
3. Length of Credit History
4. New Credit accounts
5. The types of credit accounts you have i.e. revolving, auto, home, etc.
The information from your credit file takes into account both positive and negative information, so essentially, your ENTIRE credit file plays a part in your score, how much you are approved for when applying for loans, and the kinds of interest rates you qualify for. This is why your FICO score is extremely important. The sad part is that the majority of Americans do nothing or very little to manage their credit. It’s not that people don’t want credit, although most people shy away from it because they don’t understand it, but it’s a combination of miseducation on the consumers behalf, intentional miseducation on the part of the banking, credit reporting, and lending industry, and also a consensus understanding that the credit system is not built for them to get ahead. All fair statements!
So think about this… How many of you actually have high limits on your credit cards that actually give you the leeway to shop, break the bank, and still be ok until the next payday? I would argue, not many!
The fact is that while most people will run up their credit cards between now and December 25th (Christmas), most will not pay an ounce of attention to the aftermath of it all, which is how they are going to manage and control that debt going into 2015.
The credit system is designed to allow consumers to spend easily. Credit card companies know this very well which is why they are quick to give you a credit card when you are fresh into your first year of college. It gives you access to credit, and gives them debt on your books that they can charge interest on, especially if you maintain the balances. But here is what the average American doesn’t realize: Credit can be your best asset!
Most people will argue that having credit can get you in trouble and that you shouldn’t have credit cards at all. Some will even tell you to stay away from credit altogether and buy everything in cash. Contrary to popular belief, you NEED credit! I would argue that credit is the best thing you could ever have, IF YOU MANAGE IT CORRECTLY! This is the caveat. Of course credit can be a bad thing when it’s misappropriated, that is and should be common sense to everyone, however for those that used credit to purchase homes, cars, and other items that couldn’t have been purchased without credit, it’s the best way to getting what you want, when you need it.
Credit should not be a strategy that someone uses to go shopping, that’s not what I am stressing here. I am however an advocate for building a strong credit file over time so that it can be used for investments, emergencies, real estate, and business start-ups. These are the BEST reasons for having good credit!
So how can we start on the path to good credit into 2015?
Well before you can ask yourself the how, you need to understand WHY. We all know what having good credit can mean for us but do we understand why we need it?
Having good credit is good for a few reasons:
1. It allows you to qualify for home loans
2. It allows you to purchase vehicles
3. It aids in qualifying you for loans for starting a business
4. It aids in getting hired by employers
Employers are now conducting credit checks on candidates as a way to gauge your character and your level of responsibility. This is very true with the government as well especially if you are looking to get a security clearance, but more importantly having a maintaining credit over the long-term carries a very broad range of benefits. The better your credit score, the easier it is for you maintain and build your credit over time. This means increases in credit card limits, increases in the kinds of credit cards you can qualify for, and also lower interest rates on credit cards and other loan types.
In the month of December I will be doing several credit workshops to help people start the process of going into 2015 with a strong financial footing. I be offering my credit restoration program to a select group of people who register to begin working with me going into 2015. The program will consist of credit file restoration, credit file research and consulting, as well as ongoing training and assistance in alignment with your personal goals.
Despite what people may tell you, your credit is a HUGE asset and something you should take seriously. Think about your goals for 2015 and understand that with the right credit score, purchasing a new home or car can be a reality for you in 2015!
PROBLEM: You can’t get the credit approvals you need to purchase a home, a car, or get a loan to start a business.
SOLUTION: You can start by requesting a copy of your credit report which I cover in this next blog post here. We need to understand what is on the report, how we can pull off the negative, and add the positive. We also need to understand how we can structure the credit profile so that you have the greatest chance for being successful when you submit that credit application. Stay tuned for additional blog posts on this topic!
2015 CREDIT RESTORATION PROGRAM
If you are interested in our Credit Restoration Program where we consult our clients on restoring their credit profiles to align with their personal and professional goals email me now at dean@deancantave.com with the subject line, “Credit Coaching/Consulting Services” to schedule a 30-minute consultation. I want to START you off on the right foot in 2015!
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