Most people are aware that a bad credit score costs you money, but you may not know just how much that adds up over a lifetime. The extra interest you pay for things like a mortgage, insurance, credit cards, and car loans could be invested rather than paid to creditors. It is possible that this investment in your credit could have made you a millionaire over the span of decades.
Really? Yes! For example, you have credit card debt. Someone with good credit had an interest rate of 8 percent and the person with bad credit had an interest rate of 19 percent. If you both had an average balance of $2200, the person with poor credit would pay approximately $6600 more over 30 years. Most people have higher credit card balances than $2200, so the numbers move up considerably the more you have on credit cards. The numbers get even bigger when you start financing cars and homes and paying insurance on a car or home. This interest that is paid to creditors could be invested over these same 30 years and accumulate substantially.
You can also lose out on a job if you have poor credit. More and more, employers are doing a credit report on prospective employees because they believe employing someone with poor credit can be a risk. Poor credit can deny you access to housing, as well; the concern is that you may not have the ability to pay your rent or you don’t take your obligations seriously. Not to mention the added stress on your health and relationships that higher payments can provide! Bad credit takes a toll everywhere in your life.
So how do you manage your credit? First, you need to know where you stand. What is your current credit score and what does your credit report look like? Everyone is entitled to a free credit report once a year. I suggest you put it on your calendar — say, on your birthday every year — and get the free report. Go to www.annualcreditreport.com and request the free credit report. This will enable you to see if the information used to calculate your credit score is accurate. You want to review this every year to make sure there aren’t any issues or fraud that has occurred over the course of the past year.
Next, you want to find out what your credit score is. Please note: There is a charge for this. When you request a free credit report you will be offered the opportunity to get your credit score. I recommend finding out your number; knowledge is power!
So now that you have this information, what do you do with it? If your credit score is an excellent 760-850, you can bask in the glory of your work. You will want to guard this and pay attention so it stays in the highest range. If your credit is less-than-stellar, you will want to work on getting the numbers up. I would suggest going to www.whatsmyscore.org to learn more about what are the areas that impact the score, aside from not paying your bills. This site is a valuable resource for learning about credit and provides resources if you need help with your credit.
Your credit score spreads to all aspects of your life, so it isn’t something that can be ignored or that you can remain in denial about. Know your score, protect it, and improve it. It is just one more way to take care of yourself!
Kristi L. Andersen is the principal of Kristi L. Financial Partners, LLC. (www.KristiLAndersen.com) Securities offered through and Registered Representative of Cetera Advisor Networks LLC, member FINRA/SIPC. Some Advisory services offered through AdvisorNet Financial. Cetera is under separate ownership from any other named entity.