Staying fiscally fit is every bit as critical as being physically fit, and good financial health centers on our credit. If you don’t know your credit score, contact one of the three major credit bureaus: Equifax (800 685 1111; www.equifax.com), Experian (888 397 3742; www.experian.com) or Transunion (800 888 4213; www.transunion.com). For a small fee a bureau will send you your complete credit history. If you find a mistake in the report, notify all three bureaus in writing, and follow up with them if the error isn’t corrected in a timely fashion. If there’s a valid bill you haven’t paid, take care of it immediately.
If you’re in college or have just graduated and have no credit history, open a bank account and handle it responsibly. Also, apply for a credit card, use it sparingly, and be sure to pay the balance on time. If you can’t pay the balance, be sure to make the minimum payment. One slip early on can lower your credit score for years. If you act responsibly, however, you’ll earn a decent FICO score when you most need it—for a major purchase, such as a car or your first home.
In the chart (below), provided by Myfico.com, note how monthly mortgage payments correlate dramatically with your credit score. This is how one lending institution determined interest rates for its customers.
| Score | Rate | Monthly Payment |
|---|---|---|
| 720-850 | 5.49% | $851 |
| 700-719 | 5.61% | $862 |
| 675-699 | 6.15% | $914 |
| 620-674 | 7.30% | $1,028 |
| 560-619 | 8.53% | $1,157 |
| 500-559 | 9.29% | $1,238 |
If that illustration isn’t enough of a motivator for keeping a good score, here is a nine-point “work out” for fiscal health:
- Make any loan payment on time and for the correct amount. Even an innocent mistake, like misdating or not signing a check, can hurt you.
- Don’t be tempted to accept unsolicited credit cards. Each year, younger and younger teenagers receive credit card applications with pre-approved spending limits. Shred them. Having a plethora of credit cards and paying them off generally does not help your credit score.
- Cash flow allowing, pay your bills within days of receiving them. The more you let them pile up, the greater the chance of ignoring one or two when you get into a cash crunch. Rather than ignore overdue bills, notify your creditor and make payment arrangements.
- Usually, three credit cards are enough for most people, more perhaps if travel-reward miles or gas miles are a goal. Shop for the best interest rates and terms. Credit from financing companies is more expensive and just using it can negatively affect your credit score.
- Keep your outstanding debt as minimal as possible. Continually extending your credit to your limit is usually a ding on your score.
- If you’re away from home for more than a month, either pay your credit card balances or the minimum payment in advance. If you’re traveling abroad and plan to use a credit card, call the credit card company to let them know your itinerary. This will minimize inconvenient declinations and fraud investigations.
- If your card is declined for any reason, call the credit card company immediately and identify the problem.
- Identity theft or stolen credit cards are becoming increasingly common. Don’t assume you’re automatically insured by the credit card company against unauthorized purchases. This may or may not be the case. Look into supplemental insurance covering identity or card theft.
- Accept intellectually and emotionally that your credit score is ultimately your responsibility.
