Basic Adulting: The Importance of Your Credit Score

By Paul Brehne

Basic Adulting: The Importance of Your Credit Score

‘Basic Adulting’ is a series covering topics for younger investors who are just at the start of their journeys.

Adult life sometimes means discovering the importance of something you had previously never thought about before. This list goes on and on: saving for your retirement, paying taxes, considering renters insurance, and today’s topic – credit scores.

A credit score is a numeric summary of your personal credit history. Creditors commonly use credit scores as a measure of how likely you are to repay a loan. Credit scores range from 300 (very BAD) to 850 (immaculate). Most lenders tend to view 720 as the ideal score, and anything below 630 as problematic.

But why? Great question, which deserves another: Do you have enough cash in your bank account to purchase a car? How about a house? Even if you aren’t a millennial, its likely the answer to that question is ‘no.’ To purchase those high-dollar items, you’ll need a loan of some sort. Loan providers don’t just give out loans to anyone who can fog a mirror – they rely on your credit score to determine your eligibility, interest rate, and repayment schedule. The higher your credit score, the more likely you are to get a lower interest rate and therefor save money on your monthly interest payments.

The opposite is true for low credit scores – you could run into issues securing new loans, leasing apartments, applying for a cell phone(!) contract or even getting a new job. Brehne Financial Partners would never want you to go without a phone, so let’s explore some of the ways you can improve your credit score. As with all things in life, good things take time – you can’t fix your credit score overnight. However, these strategies can help you boost your score over time.


1)      Set up payment reminders or autopay. The ‘Calendar’ and ‘Reminders’ app on your phone can be the key to a healthier financial life. Use them for setting reminders to continuously pay your bills on time and you can raise your score in just a few billing cycles!

2)      Make multiple payments in a billing cycle. If possible, adjust your budget enough to make payments on your bills every 2 weeks instead of the end of the billing cycle. This will lower your credit utilization and can quickly boost your score.

3)      Pay down “Maxed Out” credit cards first. Those who utilize more than 1 credit card should prioritize paying down or off the one that has a balance closest to the credit limit. This will shrink your credit utilization and increase your credit score.

4)      Contact Your Creditors. Despite stereotypes, most creditors will work with you if you can’t afford your monthly bill. Call them and request to set up a revised payment plan. While it might extend the length of your payback period, this will help you avoid skipping or making late payments, which will greatly impact your score over time.

5)      Avoid Applying for New Credit. Applying for new cards or an increased limit on your current cards within a short period can poorly affect your credit score. With regards to your credit cards, ‘love the one you’re with!’

6)      Leave Unused Credit Card Accounts Open. Having a longer credit history will positively impact your credit score. Though it seems counterintuitive, avoid closing credit card accounts – and if you must, close newer ones.

7)      Be Careful Paying Off ‘Charged Off’ (Old) Debts. If a debt is ‘charged off’ by your creditor, it means they don’t expect any further payments and it isn’t counting as negatively towards your score as it would be if it were ‘active.’ Paying on a ‘charged off’ account will reactivate the debt and instantly lower your score.

Final Thoughts

You can check your credit score for free every 12 months from the 3 main credit reporting companies (Experian…Check Your Free Credit Report & FICO® Score - Experian, Trans Union….Credit Scores, Credit Reports & Credit Check | TransUnion & Equifax…Equifax | Credit Bureau | Check Your Credit Report & Credit Score). You can also order your score from annualcreditreport.com, the only authorized website for free credit reports.

Brehne Financial Partners of Silver Spring Capital can help you tailor a strategy to improve your credit score and experience all the benefits associated with doing so. Visit my website or call me (Paul!) at 862.702.3500 to set up a free, no-obligation consultation to discuss how I can help you put together the pieces of your financial puzzle.


**Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Sources
Experian: How To Improve Your Credit Score  12/18/18  https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/ 
Debt.Org:  How To Raise Your Credit Score:  https://www.debt.org/credit/improving-your-score/ 
Investopedia: How to Improve Your Credit Score: 7 Strategies to Improve Your Score 9/16/2019  https://www.investopedia.com/how-to-improve-your-credit-score-4590097