Credit Fitness: How to build, improve and protect your credit

Did you know that over 61% of Americans have credit card debt? According to a recent survey by Clever Real Estate, 3 out of 5 Americans carry credit card debt. Even a debt as low as $5,875 can take over ten years to pay off. But don't worry - we will guide you in paying off your debt efficiently and quickly. Let's take the first step towards controlling your finances.

We will examine the fear of credit and why it is essential to understand its implications and outcomes. We will also delve into the process of calculating credit scores and share some tips on how to help our children establish credit early to avoid financial difficulties and setbacks. Additionally, we will discuss building business credit and explore ways to quickly increase your credit score to eliminate personal and business debts.

Credit Phobia

Having a good understanding of credit and its importance is crucial. However, some people, especially millennials, often feel anxious about owning or using a credit card due to Credit Phobia. Some millennials note they fear credit card debt more than death itself. Many people's fear is related to the concerns of getting into credit card debt and the fear of what you may find when you check your credit report. There is also the fear of needing to learn how to fix any issues. Ironically, using credit cards responsibly can be beneficial in many stages of life. While it's understandable to exercise caution, it's essential to consider the numerous advantages of credit cards to take advantage of potential opportunities.

Protect Yourself from Identity Theft

It is important to regularly check your bank statements and credit card transactions to avoid any unauthorized charges or withdrawals. Review each transaction carefully and report any suspicious activity immediately. If you notice that your bills are not coming in time, it could be a warning sign that someone has changed your contact details to hide any fraudulent charges. In such a case, contacting your bank or credit card company is best immediately. Additionally, checking your credit report regularly is always a good idea, regardless of whether your credit score is good or bad. Checking your credit report for inaccuracies is crucial, as these errors can decrease your credit score, increase interest rates on loans and credit cards, and even prevent you from getting a loan, mortgage, or job. Therefore, reviewing your credit report can help prevent identity theft and fraud, and ensuring accuracy is essential. If you find any errors, you should take action by disputing the information with one of the credit reporting agencies. You can do this by writing a letter that explains what you believe is incorrect and why and including any supporting documentation you have. You can obtain a free credit report annually from Equifax, Experian, and TransUnion through annualcreditreport.com

Be vigilant and cautious of identity theft and take necessary steps to protect your credit. Securing your Social Security number is one of the most critical measures to safeguard your personal information. To prevent data misuse, avoid carrying any item that displays your SSN in your wallet. Be aware of phishing scams, where fraudsters impersonate banks, stores, or government agencies through phone calls, emails, or regular mail. Do not respond or give out your account numbers or passwords if you encounter such scams, as legitimate companies never ask for this information. To create a strong password, use at least eight characters comprising a combination of letters, numbers, and symbols. Store your passwords securely and ensure they are easily accessible if needed. Be cautious of the type of information you share on social media sites, such as your home or email addresses, children's names, and dates of birth. Some scammers can use this information to steal your identity, so it is crucial to be careful.

Protecting our computers and smartphone accounts from potential threats is crucial. We should use strong passwords and install firewall protection against viruses to ensure this. We must also be careful when installing software and only use reputable sources. Avoid clicking on links in pop-up windows or spam emails. It is also advisable to set our internet browser to at least a medium-security level and exercise caution when clicking on unknown links. As we use our computers, we often come across pop-up windows. We must be careful when such pop-ups appear and ensure we are familiar with the website. We should read the privacy policy and look for options to opt out of information sharing. Sometimes, we receive pre-approved credit offers, which can be beneficial, but we must also assess if it is a suitable option for us. There is a way to stop receiving pre-approved credit offers in the mail. You can call a toll-free number, 888-567-8688, or visit the website www.optoutprescreen.com to remove your name from the list.

Understanding your Credit and Credit Scores

Understanding how to manage your credit and debt effectively is essential, as it can significantly impact your life. Your credit score is a crucial factor that determines whether you are approved or denied for various financial products, and it also affects the interest rates you receive on loans. Apart from this, your credit is also an essential factor when opening a savings or checking account. Banks use systems like Check Systems to decide if you qualify for these accounts. To avoid surprises from lenders when they scan the various credit bureaus, you need to know how to obtain and read your credit report to make informed decisions. Nowadays, many employers also check your credit report before hiring you, which can impact your chances of getting the job. Your credit score affects various aspects of your life, such as your ability to get a student loan, credit card, car loan, rent an apartment, or obtain personal loans, insurance, mortgage loans, and business loans. As such, credit significantly influences several essential aspects of our lives.

It's important to understand how your credit score is calculated. Your payment history contributes 35% to your credit report, so paying your bills on time is crucial. A single late payment of 30 days can reduce your credit score by several basis points. Another critical factor that affects your credit score is the utilization of amounts owed, which accounts for 30% of your credit score. If you have a credit card with a limit of $10,000 and you have a balance of $5,000, you are using 50% of your credit limit. It's essential to keep your utilization ratio below 30% on revolving credit, such as credit cards and lines of credit. You can calculate your utilization ratio by dividing your balance by your limit. For example, if your balance is $1,500 and your limit is $10,000, your utilization ratio would be 15%. Your credit history also plays a role, accounting for 15% of your credit score. The length of time you've had particular accounts open is essential. Lastly, the types of credit you use account for 10% of your credit score, so it's necessary to diversify your credit with different kinds of credit listed on your credit report, such as having a mortgage loan, a car loan, a credit card, or a line of credit.

It's common to feel tempted to open new accounts during the holiday season to take advantage of discounts while shopping. However, opening multiple accounts can negatively affect our credit score in the long run, as new accounts have no payment history. Even though the discount may seem like a great deal, it could potentially harm our credit score. It is advisable to apply for new credit only when necessary, especially when applying for a mortgage loan, as 10% of our credit score is based on new credit, which could affect our chances of being approved.

It is important to understand that closing a credit card account can have a negative impact on your credit score. This is because it removes the positive credit history of that account, which can lead to a significant drop in your credit score, even if it was previously high. If the credit card has no fees or annual fees, it is better to keep it open, even if you pay down the balance. This way, you will retain the history associated with that card.

To accumulate wealth, knowing the rules and strategies for managing your credit and maintaining a good credit score is crucial. Those with a credit score ranging from 800 to 850 are considered to have an excellent credit score and aim to maintain it. However, credit scores can drop, even if you have a perfect credit score and have made all your payments on time. For instance, consider the case of a client approaching retirement. They stopped using credit altogether, which caused their credit score to drop from 800 to 520. As a result, when they applied for a loan, they were offered much higher interest rates than before. Therefore, it is essential to maintain a good credit score by keeping your credit cards open and paying down balances, even if you are not using them frequently. It's crucial to maintain an active credit history, even if you aim for a debt-free lifestyle. Using a credit card and paying off the balance immediately after receiving the statement can help keep your credit score healthy.

Credit scores are essential when it comes to borrowing money. Two types of credit scores are commonly used - VantageScore and FICO score. VantageScore is the score you usually see when you check your credit history on websites such as Credit Karma. In contrast, FICO scores are the scores that lenders use to determine whether you're eligible for a loan or credit card. To obtain a VantageScore, you only need one account with a pay history of 30 days. However, to get a FICO score, you must have at least six months of credit history with several trade lines. Three trade lines are typically considered a good practice when applying for a VantageScore or a FICO score. It's essential to understand that while both credit scores are helpful, they may have slight variations. For instance, your credit score may be 700 when you check it on Credit Karma, but when you approach a lender, they may quote a slightly higher or lower score.

"How can I improve my credit score? What are some things I should and shouldn't do? As we mentioned, your credit history plays the most significant role in calculating your credit score. Therefore, making all credit card payments on time is vital, as is keeping track of due dates, paying your debts in full, paying more than the minimum amount due, or considering a debt-elimination plan. Also, refrain from applying for new credit while applying for a mortgage loan. Another way to improve your credit score is to decrease the total debt owed, including credit cards and personal loans, which is one of the fastest ways to do so. It is crucial to be proactive in monitoring your credit history, ensuring data accuracy, and seeking professional guidance to save money in the long run."

Establishing Credit for Your Children

How can we help our children establish credit, and why is it important? Establishing credit becomes exceptionally crucial for parents whose children are nearing college age, as they will soon begin applying for student or auto loans. To be more proactive, we must start building credit for our children early, which will help them acquire loans independently without requiring us to co-sign. It is important because co-signing may limit our ability to obtain other loans. To achieve this, we can encourage our children to save money and teach them the difference between a debit and a credit card. We can enroll them in financial workshops to help them learn about money management.

Additionally, we can assist them in saving for a secured credit card or a safe and secure loan, which they can obtain on their own and which will start building their credit. Finally, we can add them as an authorized user on a credit card with a good payment history and low utilization without giving them the card. This method can help them improve their credit without taking the risk of overspending. As parents, we should teach our children about money and investments, starting as early as possible. We can begin by teaching them about credit and managing it wisely.

Let's discuss the significance of establishing credit for children and compare the impact of having excellent credit versus poor or no credit. For instance, let's take the case of two clients, Lisa and Kim (not their real names). Lisa intends to purchase a new car worth $26,000 and pay for it in 60 months through financing. Due to her excellent credit score, Lisa is approved at a rate of 2.99%, and her monthly payment is $467.07, resulting in a total payment of $28,024.23. On the other hand, Kim also wants to buy the same car, but her credit score isn't as good as Lisa's. As a result, her approval rate is 26.99%, and her monthly payment is $793.76, resulting in a total payment of $47,625.79 over 60 months. This is $20,000 more than Lisa is paying for the same car. Kim's higher payment is due to her poor credit score. Although Lisa and Kim were approved for the same loan, Kim's poor credit score resulted in a significantly higher payment. Therefore, it emphasizes the importance of building credit early on.

Children who don't have a cosigner will start with a high-interest rate of 26.99% if they don't have credit. Building an excellent credit score can save significant money on borrowed money. For instance, a difference of over $400 per month can result in paying over $5,000 more yearly. This money could have been invested in five years, resulting in approximately $40,000 with returns. Credit plays a vital role in building wealth. The good news is that your credit score is not set in stone and can be improved. Whether you are in a less favorable position or striving for an excellent credit score, we can assist you in achieving your financial goals.

Establishing Business Credit

As an entrepreneur looking to establish business credit, there are specific steps that you need to follow. Firstly, determine the type of entity designation you need to use, be it an LLC, a corporation, or a sole proprietor. You can always consult your accountant for this information. Once you have done that, register your business with Dun and Bradstreet to obtain a DUNS number. This unique identification number is essential when applying for loans.

Next, you must apply for an EIN and an employee identification number from the IRS and open a business account. You can then ask your vendors to report or send trade references to Dun and Bradstreet to build your credit. It is essential to make your vendor payments on time to establish a positive Dun and Bradstreet credit rating and keep your credit in good standing. You may rely on your credit to guarantee your business loan during the initial stages.

Once you have built a strong credit score, you can get business loans without using your signature. You can quickly reposition your credit to eliminate your personal and business assets and build wealth.

Decreasing the amount of amortization cost you pay on any loan is vital, even if it's just a credit card or a mortgage. It will free up your cash flow and give you more control over your finances. To achieve this, we suggest creating your family bank, which involves identifying inefficient dollars in your budget. These could be things like tax refunds, unused subscriptions, or other areas where you are overspending. By redirecting these inefficient dollars towards paying off your debt, you can reduce your unsecured debt within 3 to 7 years, including any car loans. You can also use this concept to pay your mortgage within 7 to 12 years. By doing this, you can build wealth without finding additional funds. The family bank concept allows you to create a life contract that will benefit future generations by providing them with assets. So start building wealth today and take control of your financial future. Contact us for a credit and financial wellness check to determine your best option. We'll assist you in evaluating your situation and offer personalized advice.

Questions From Webinar Attendees

"How do you improve your credit score, and how long does it take to see improvement?"

Several ways to improve your credit score include paying your bills on time and reducing your credit utilization. The time it takes to see improvement varies depending on your situation."Your score can change. It's not a permanent report card.

How long will it take?

It depends on the individual situation." Yes, your credit score can change over time. The time it takes for your score to change depends on several factors unique to your situation. If you want to improve your credit score, we can analyze your situation and suggest the best action.

If I have high utilization on a credit card, should I consider a balance transfer? -

Transferring a high balance to a new credit card with 0% interest can be a smart move when managing credit card debt. However, before making any decisions, there are a few important things to consider. Firstly, remember that balance transfers usually come with transfer fees, which can be as much as 2 to 3 percent of the total balance. Therefore, it's important to weigh the pros and cons of doing a balance transfer carefully. Secondly, closing old credit card accounts may seem like a good idea, but it can do more harm than good. This is because closing accounts can result in a loss of account history and increased utilization, ultimately lowering your credit score, even if you're paying a lower interest rate. It's better to keep all accounts open to keep utilization down. Lastly, it's crucial to read the fine print and disclosures carefully before agreeing to a balance transfer. You must ensure that the transfer balance fees are not higher than what you paid on your old card(s). In summary, while balance transfers can be helpful, it's important to research and understand the financial implications before making any decisions.

"Would you suggest locking your credit, and is there a way to close credit without paying for a subscription to Experian? Do you recommend sealing your credit? -

"If you're not using your credit, you have the option to freeze it. The best part is, it's free! You can visit each of the credit bureaus and request a credit freeze. They will assign you a PIN, which you can use to unfreeze your credit if you want to apply for a loan or credit. So, to answer your question, yes, you can freeze your credit.

How many credit cards should I have? Which credit cards should I get? -

Let me explain if you're wondering whether having too many credit cards is wrong. Credit cards can have different interest rates and offers, such as discounts on gas or food purchases. Some cards may have higher interest rates but offer more perks. If you pay off your balance at the end of each month, you won't accrue interest, so you can choose the card with the most benefits. However, if you carry a balance, choosing a card with a lower interest rate is better, even if it doesn't offer as many perks.