I thought I would write the first article for this blog as sort of an introduction to who I am and what we do here. I am by no means an expert, but I do know a lot more than the average person when it comes to credit and finances. I have spent the last few years of my life learning everything I could about how to become financially free. Financial freedom means different things to different people, but to me it means being able to do what I want when I want, traveling where I want whenever I feel like it, and taking whoever I choose with me. For others financial freedom could be as simple as being able to pay their bills without having to work for it. One of the things I learned along the way is the difference between good and bad debt, as well as good and bad credit. What is credit? What things make your score go up, and what things make your score drop? What can I do to bring it up when it’s down and what should I do to keep it up? Answering all those questions brought me to where I am today, and to writing this article. I want to share what I’ve learned with other people, and I want to help other people fix the mistakes they’ve made in the past so they can reach whatever it means to them to be Financially Free.
So let’s start this off by explaining what credit is. Credit and your credit score are interrelated, but different things. Credit has many different meaning when it comes to the dictionary definition, but the most relevant to what we are discussing here usually is: trustworthiness; credibility: a witness of credit; or, confidence in a purchaser’s ability and intention to pay, displayed by entrusting the buyer with goods or services without immediate payment. In other words it is the lenders trust in the borrower’s ability to pay back the loan for goods and services. Today your credit score is a number that the credit reporting agencies have come up with as a way to represent that level of trust. It is based on a number of factors that are used to calculate that score, such as prior payment history, debt to equity ratio, etc. All these things are used to evaluate your ability and trustworthiness to pay back debt.
Everyone is different, and everyone has dealt with different things in their life so even people within the same family or group of friends could have vastly different scores. Young adults, recent graduates of high-school for example, start out with about the same score because generally they have not established any sort of credit history because up to that point their parents have paid for almost everything. Once you establish some credit (school loans, your first credit card, a car loan, etc.) your score will go up or down depending on how well you do with paying off that debt in a timely fashion.
The best score on the scale is 850, and goes all the way to zero, but in general the lowest you should expect to see is around 350 (unless you’ve been really trying not to ever pay bills). To get some perspective 620 is about the lowest score you could have and expect to get any sort of high value loan (i.e. a mortgage). The other thing you need to know about your credit score is that the lower your score the higher your interest rate. Higher interest rate means it will cost you more money over the term of the loan to pay back the debt. For example two people go purchase the same vehicle for $25,000; One has a credit score of 725 and the other has a credit score of 635. When the financing company looks at the two buyers they’ll charge them a different interest rate based on that credit score and give the person with the 725 credit score of 5.25% and the person with the 635 score a rate of 10.5% on the same vehicle. Over the course of the loan that difference in interest rate costs the person with the lower credit score almost $5000 more. This is done to ensure the lender doesn’t lose money when the borrower misses payments as they expect will happen based on their credit score.
Sorry for the long explanation, but I hope it makes it a bit clearer for those who didn’t understand the whole concept. I also hope it makes it pretty clear that having a good credit score will save you money in the long run.
What we do here at HelpYourCreditNow.com is to help people fix their credit scores, and put other protection systems in place to ensure once they have improved their credit they will be able to keep it at that higher rate. We also help to educate people in what to do in order to change the past behavior that led to the bad credit.
If you are looking for help in fixing your credit situation, or even if you already have good credit but are interested in helping to keep your good credit, I recommend you reach out to one of the agents on the Agent Locator page for assistance. We can also help with setting up a will and trust to protect your assets.
I’m looking forward to updating this blog regularly with helpful information on how to improve your credit situation.
To Your Financial Future,