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Your Credit (A Powerful Purchasing Force or Kryptonite), Money-Guy Podcast 6-29-2006

Your Credit (A Powerful Purchasing Force if used correctly or the Kryptonite of American consumers if used unwisely)

Superman Returns came out this week and I felt it was appropriate to incorporate the comic book feel to my title.

 

Being Serious Credit is truly powerful:

If used correctly it can help make your life much easier including

  • Buying or refinancing real estate
  • Earn you rewards for everyday purchased through credit cards
  • Lower your Insurance Rates (in case you did not know most insurers are now using your credit rating to help them evaluate you as a property and casualty insurance client

If used poorly it can lead to years of dark days including:

Trouble setting up utilities, mobile phone service, and insurance

Higher rates on your home mortgage and auto loans

Evil rates and fees associated with your credit cards with limited rewards and benefits.

Let’s talk about the Average American and Average Credit Statistics from FairIssaac

Your credit behavior directly impacts your credit score aka FICO score. You have three FICO scores, one for each of the three credit bureaus – Experian, TransUnion, and Equifax

· The median FICO score is 723

· A top tier FICO score is between 760-850

· 700-759 is the next level of FICO scores

· Below 700 and you need to get serious about your credit

What makes up your FICO score?

How Does Rate Shopping Impact your score?

Improving your FICO score

Payment History: 35%

Amounts Owed: 30%

Length of Credit History: 15%

New Credit: 10%

Types of Credit in Use: 10%

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Comments

  1. Hi Brian, I just wanted to let you know that this has become my favorite podcast. I’m one of your younger listeners (21) and really appreciate your objective advice. I’m not sure where we should send questions, so I’ll post it here.

    I have two questions: I am currently reading “Rich Dad’s Prophecy”, I picked it up the other day for casual reading but it has really taken my interest. What do you think about that idea that in ten years or so, when all the 75 million babyboomers begin retiring and are forced to sell X percent of their portfolios every year, that the middle class semi-investors will become scared by the drop and will begin selling all their stock thus resulting in the biggest stock market crash ever? I haven’t finished reading the book yet, but it certainly does seem plausible. I would love to hear your input.

    Second, I’ve decided, over the last few years, that I would like to become a financial councelor. What would you suggest as the best method to make this happen. What degrees and what certifications should I focus on first? Thanks for all that you do, sir.

    Jeffrey Way

  2. Enjoyed the latest podcast on credit. Your comments at the end of the show about company matching in 401k plans being “free money” also apply with credit cards. If a credit card company wants to give me cash back and I don’t carry a balance (so I don’t give them “extra” cash back), that is also “free money”. Of course you have to be disciplined about it so you don’t fall into the debt trap. For large purchases I sub-divide my savings account total (using Excel) into separate savings goals and when I save enough for a goal I charge the purchase and then transfer the money from the savings to cover the purchase. This way I earn interest while saving for the purchase and it feels so much better to know you have the money to pay for the purchase rather than knowing that you will be paying on it for years to come and several times more than the original purchase price.

    Great show – how about doing one on online bill pay services like Quicken Bill Pay?

    Andrew