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TYPros Talk columnist Scott Gaffen, a past mortgage consultant and consumer finance lender and manager, says that no matter which industry we work in or associate with, strong credit is vital.
352 … 711 … 583 … hut … hut … hike! No matter which team you were rooting for in the recent Super Bowl, we all know the most important score of all: your credit score. As a former mortgage consultant and consumer loan officer, I’ve seen the good, the bad and the ugly of credit and money management. Personal financial and credit literacy is quite limited in today’s society and only now has come back to the public forefront because of the housing and credit collapse of 2006-2008. So how can we protect ourselves from financial and credit worries? Knowledge and action.
CREDIT BASICS
1. Credit/consumer reporting agencies: TransUnion, Equifax and Experian
2. Credit scoring models: Only Equifax has the true FICO scoring model (developed by the Fair Issac Corp.). The others have their own similar models, as do most credit card and insurance companies, but for lending purposes, generally only the FICO score matters. Each agency receives slightly different credit information, but in general, your information and scores should be similar across all three agency reports.
3. Scoring range: The FICO scoring range is 300-850 — the higher, the better (i.e., less “risky”). A score of 660 is usually considered the dividing line between a “low risk” and a “high risk” consumer. Fifty-eight percent of the national population has a 700-plus credit score.
4. Scoring basis: Thirty-five percent of your credit score is based on your payment history and 30 percent is based on the balances you have on your accounts, so pay your bills on time and keep your account balances below 35 percent of your credit limits — better yet, strive for paying off any revolving account balances in full every month (i.e., credit cards, store charge accounts, etc.). You kill two birds with one stone. Fifteen percent of your credit score is based strictly on the length of your overall credit history and the newness of your accounts — under most circumstances, keep your oldest revolving accounts open and in good standing.
5. Inquiries: Although 10 percent of your credit score basis, “hard” inquiries (those made by lenders, etc., in the attempt to gain credit) can drop your score slightly, but try to keep them to a focused period of time, such as when you’re buying a car or home. “Soft” inquiries (those made by you, agents or for pre-approved marketing) do not affect your score.
6. Credit negatives: Hard inquiries remain on your credit report for two years. Public records (bankruptcies, tax liens, collections and judgments) generally remain for seven to 10 years (and sometimes, indefinitely) depending on individual circumstances. The effects of late payments on active accounts diminish greatly over time as long as you make on-time payments for 12-24 months.
7. Personal action: Your credit reports are only a “snapshot in time”— stay focused and take positive action and your scores will improve. The Fair and Accurate Credit Transactions (FACT) Act of 2003 allows you to receive a free copy of all three credit reports once a year. Go to www.annualcreditreport.com (not the “free” site, despite the cheesy peppiness of that lame band) and get at least one of your free credit reports every four months. You may purchase your individual credit scores for a nominal fee. If you notice or discover any inaccuracies, you will have the opportunity to dispute them.
PERSONAL MONEY MANAGEMENT BASICS
1. Strive to save three months’ living expenses in a readily accessible “emergency fund” account. Work to build that into six to 12 months’ worth. Car troubles, medical issues and employment setbacks can come without warning and can get quite expensive.
2. Live beneath your means, devote at least 10 percent of your monthly pay to savings and track all monthly expenses to find more savings opportunities.
3. Create a monthly and annual budget, do comparison-shopping research when appropriate and minimize your credit card purchases.
4. Reward yourself! You’re on the way to a strong credit and financial foundation.
Gaffen is the house manager for the Tulsa Performing Arts Center and a member of Tulsa’s Young Professionals. He currently serves on TYPros’ Government Relations Crew and recently joined the Next Generation Leadership Crew and the Colleges and Universities Crew.
He is also an associate of Volunteer Central of Greater Tulsa, a certified volunteer administrator (CVA) since 2009, the 2010 chair of the Community Volunteer Council and casting director and marketing director for Tulsa’s own Next Monkey Horror Films.
