I pulled my car into a garage to have the oil changed this week. I realized during this process how closely some of these financial topics mirror auto repair jargon. Sometimes it takes all of my acting experience to pretend I know what a mechanic means when he’s explaining the difference between types of oil. I’m terrified he’ll recognize me as the not-sure-where-the-oil-goes person I am, and suddenly the cost of my car repair magically skyrockets.
As I’m smart enough to realize that there are auto-related facts I must know to keep my costs down, it’s similar with some financial concepts. One number may save you more money than any other in your financial life. It’s called a FICO score. This number tells lenders how reliable you are with payments to debt. People with high credit scores are offered lower interest rates to borrow. They’re also often given better repayment terms.
Knowing your score became more important than ever a couple months ago when Bank of America changed their fee structure.
Bank of America has decided to slap a $59 fee on BofA credit card customers with low credit ratings. This fee isn’t limited to a single type of credit card. Instead, it’s across the board. Roughly five percent of all BofA credit card customers will pay this fee.
Bank of America won’t be the last bank to raise fees based on credit scores. Banks act much like airlines, who raise fares quickly when a competitor decides it’s time to increase rates.
How do you keep your score high? Especially if you’re torn between a job to pay the bills and your art, where do you find the energy to track your credit score? Luckily, much of the work is easy to handle and takes only a few minutes to complete.
Pay your bills on time!
35 percent of your credit score is based on your track record of making timely payments to your debt. Even if you only can make a minimum payment, keep payments on-time.
One client, a woman at a local television station, struggled with paying bills. Different than many artists, she had more than enough money coming in. Her valuable commodity was time. She simply forgot to pay her bills because she was on-camera or chasing the next story.
To make it easy for her, I helped her set up automatic bill payments. She direct deposited enough of her paycheck to a special account, which automatically deducted her monthly bills. Her credit score went up over 100 points in six months!
Free Up Credit
Make room between the amount you owe and the amount of credit available. Credit companies become nervous about loaning money to someone with maxed out credit cards. At this point, there’s a high probability that you may need more credit, because if something bad happens there is no more room to charge away the emergency.
30 percent of your credit score is based on the amount of open credit you have available, when compared with the amount of total credit you have. To improve this statistic, make a plan to pay down credit cards. Move to a system of paying cash for items. To stay honest, stop carrying credit cards at all. Force yourself to pay cash or avoid making purchases.
Order a Free Credit Report
Check your credit report for mistakes and correct them. Sometimes you can move your credit score up by several points. ABC News recently reported that more than 90 percent of credit reports have mistakes in them.
The only credit report endorsed by the U.S. Government is available through AnnualCreditReport.com. This website, jointly run by the major credit agencies, allows people to access the same information that companies such as Bank of America use to make decisions about fees and rates. The report is free.
Accessing your credit report at AnnualCreditReport is quick and easy. Unfortunately, it doesn’t include your credit score. To access this number, you’ll have to pay a nominal fee to one of the credit bureaus or to myfico.com.
There are added bonuses when you access and work to improve your credit score. You quickly find that you establish good habits of paying bills on time and paying down debt. You may create systems to allow you to focus on your art more while staying current on your financial picture. No matter how much you think you don’t want to know about financial planning, you’ll become excited by having a firm grasp on your financial success.