April is Financial Literacy Month

With that in mind nothing is more important to your overall financial health than good credit.  We addressed this last year and thought this would be a good time to update you on the current credit environment.

Your credit profile impacts multiple areas of your life. The cost of anything that you purchase utilizing credit is impacted by your credit scores; insurance such as home owners, life and auto are often priced according to perceived credit risk.  In addition, today many employers require a credit review as part of a background check on any new employees as do many landlords for prospective renters.

With credit driving so many of your financial decisions it is important to fully understand and manage credit wisely.

For example, a frequent question is, “If I don’t use a credit card doesn’t it make more sense for me to cancel that card?”

You would think that.  The truth is that one component to the credit scoring models is the percentage of available credit outstanding.  The scoring models reward consumers who keep their credit balances at 30% below their credit line on an individual credit card. The models also look at total available credit across all credit lines – if you cancel an unused card that has a $1000 limit, you have reduced your total available credit and therefore increased the percentage of debt to available credit.

Understanding how to build a solid credit base for future purchases such as a home is key. Know how the type of credit, your credit history, payment history, credit inquires, and outstanding balances can impact your credit scores:  Learn more here.

For more questions on credit, such as when pulling credit may harm your credit score, or whom to contact if there is an error on a credit report, please visit a previous post we did on these topics and more, here. 

For comprehensive information on all types of credit and debt issues, visit the Consumer Finance Protection Bureau (CFPB).

For more general information on credit and financial literacy, including resources to educate kids, visit the Financial Educators Council.

If you have specific questions about how your credit will impact your ability to qualify for a loan, please give us a call (781) 719-4664.