FINESSIN’ FINANCES: Credit Overview.

Ignorance isn’t always bliss.

We all have a friend that we’re hesitant to lend things to, no matter what it may be. We may love them like frat boys love Vineyard Vines, but we know once we let them “borrow” something that we might as well kiss it goodbye. I’ve even had friends “borrow” something for so long that I had to “borrow” it back as if it wasn’t mine. Life’s funny like that. Lenders, however, don’t have the luxury of knowing their customers on a personal level, so they rely on your credit report to determine your likelihood of paying back what you borrowed (and on time).

Good credit — much like trust and that Summer body you’ve been working on for half a decade now — takes a while to develop, but very little time to lose. If you don’t believe that your credit score matters, then you’re either too rich to be reading this blog to begin with, or you’re just as foolish as the man who believes his girlfriend when she responds “nothing” when asked what’s wrong. Granted, a low credit score isn’t the end of the world. You can still live a normal life with bad credit — it’s just not easy or cheap.

At this point, you may be wondering if you fall into the good credit or bad credit category. First and foremost, I highly recommend you check your latest credit report for free here. You can get a free report from each of the 3 credit bureaus once every 12 months. Next, it should be noted that your credit report and credit score are not the same thing. Your 3-digit credit score is calculated by what’s on your report, and various companies score this differently. Your actual report, however, should be the same. The important score to focus on is your FICO score.

Now we should actually define what is a good credit score. Scores range from 300–850 and can be viewed like the following:

300–579: Pretty damn bad. I’d rather fight a coked up Mike Tyson in his prime than loan somebody in this range some money. Don’t get discouraged though, better days are ahead.

580–649: Ehhh-ish. In this range, I wouldn’t quite fight Mike Tyson before loaning you money, but I’d definitely watch a The Big Bang Theory marathon first.

650–699: Good. You can view this range like mid or bottom-shelf liquor; your preference should be to avoid it, but it will definitely get the job done out of necessity. You should want better for yourself though.

700–749: Very good. Once you’ve reach this range, you can start to feel a little more confidence in yourself. You aren’t quite where you want to be, but you’re well on your way.

750–850: Brag worthy. If your score is in this range, salute! The ceiling is the roof.

It should be noted that there are no universally defined ranges. Different lenders have different definitions of what they consider a “good” score. Lenders looking to approve more borrowers have a tendency to lower their standards for what they consider “good.” Funny how that works, right?

Below are a few of the benefits of having a good credit score, outside of better loan approval chances:

1. Lower interest rates. Your interest rate is essentially the cost you pay for borrowing money. The better your credit score, the lower your interest rates. It’s pretty straightforward.
2. Better credit cards. Credit cards are essential to your journey to brag worthy credit, there’s no doubting that, but once that goal is met, a good score will give you access to credit cards that’ll make it worthwhile. You’ll get access to cards with higher spending limits, rewards, and even cash back on purchases. (There will be more on credit cards to come.)
3. Avoid security deposits. Companies often require folks with not-so-good credit scores to pay a security deposit, just in case they decide not to pay. We all know folks love to go missing and “lay low and build” when they owe you money.

Okay, so now that you know your score, you may be wondering how that number is determined. There’s 5 main factors that determine your credit score. They’re listed below in order of importance:

1. Payment history (35%). Needless to say, your payment history is the most important aspect of your credit report. A history of late or missed payments is obviously a red flag. If you run off on the plug once, you’ll do it twice. The past is often a good predictor of the future.
2. Credit utilization (30%). This is a fancy way of saying, “out of all the credit you have available to you, how much are you using?” For example, if you have a credit card with a $1,000 spending limit, if you spend $200 of that, your credit utilization is 20%. When you’re Finessin’ you want to keep this number below 30%.
3. Length of credit history (15%). Just as jobs prefer folks with experience, people looking to lend out money prefer folks who have a history of dealing with credit.
4. Credit mix (10%). Having different types of credit (like credit cards, car payments, utility bills, etc.) is seen as a positive sign. Shows you can multitask.
5. Recent Inquiries (10%). When you apply for a lot of different credit lines within a short period, lenders see this as a red flag. 3–5 inquires within a 2 year period is average. The less, the better.

Credit utilization is the one factor that many people overlook. Paying your credit card bill in full each month isn’t enough, you want to stay below 30% at all points during the billing cycle. It seems dumb as hell, I know, but the game is the game. Below are some Finessin’ tips:

• If you can’t reasonably keep your balance below 30% at all times, find out when your credit card company reports to the credit bureaus and try to pay your balance down before that date. You’d think all companies would report at the same time (you know, like the first or last day of the month), but that’d be too easy and simple, wouldn’t it?
• Set balance alerts. It’s 2017, even your grandma who’s still using a flip phone like drug dealers in The Wire can set up balance alerts. You can get them via text or email, you don’t even need a smartphone. If you’re smarter than me, you’ll set it up to get alerts before you hit the 30% mark. Give yourself some wiggle room.
• If you’re like everybody who you’ve ever met and it’s hard for you to stop spending, ask for a credit limit increase on your card(s). Fundamentally, this isn’t the best option (mainly because it ends up in a wardrobe upgrade), but it works if you’re discipline. Godspeed, fam. If your limit is $1,000 and you usually spend $500 every month, a credit limit increase to $2,000 would take your credit utilization from 50% to 25%. Finesse.

Credit, of course, is a semi-complex topic, and to cover everything surrounding it would take longer than you’d be interested in reading in one post. I’m not judging you, I hate reading too, fam. As stated earlier, credit cards are a key component to raising your credit score and if you’re serious about getting your credit together, you’re going to need to know the ins and outs of how they work. No worries, the next blog will help you Finesse that. In the meantime, remember to drink more water, support local businesses, and laugh a lil’ bit.

Next upcoming FINESSIN’ FINANCES topic: CREDIT CARDS.

“You don’t realize how much you use your credit card not even to buy things. It’s a card you get so you can navigate society” -Adam Carolla

If there are any specific topics that you would liked touched on, or if you have any general questions and/or concerns, please don’t hesitate to email me at swalters82@me.com!

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