I want to start this post by asking you a few questions. Do you know what your credit score is or how it’s calculated? Do you pay for a service that monitors your credit score in some way? Why do you feel you need to know your credit score? Are you getting ready to make a major purchase, like a house or a car? When you think about your credit score, does it make you feel tense or worried?
These are all questions designed to make you think about how important your credit score really is. As a bankruptcy attorney, I’ve had many, many people lament their low credit score over the years. I’ve tried to gently counsel them by telling them two things. First, you can build your credit score back up through simple money management techniques. Second, I try to make them understand that a credit score is just an arbitrary number, not an indisputable indicator of your self-worth or your skill at managing your money. Sometimes they hear me, I suspect most of the time they don’t.
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Now seems like a good time to make a full disclosure. I sell a course on credit scores that is designed to teach you how they are calculated and specifics on things you can do to improve yours for people who need to improve theirs. Like I said, your credit score is important if you need to borrow money for a big purchase, so there are circumstances when you need to take direct action to improve it. You can check the course out by clicking here. There, I said it. Let’s move on!
What’s my point with all this? Well, (spoiler alert), my point is that your credit score is not the be all, end all. Let me explain by using myself as an example. First of all, I never, ever check my credit score. I just don’t even think about it. As I sit here writing this, I’m trying to remember the last time I checked my score or knew what it was and the best I can recall is twelve years ago when I was buying a car. I don’t think about my credit score because I’m not interested in borrowing any money. Therein lies the key. Before I keep talking about credit scores, I do want to take a minute to talk about the importance of checking your credit.
Do you recall the Equifax data breach last year? Sure you do! It was all over the news. You couldn’t miss it, even if you were living under a rock. It got so much press that people were contacting me left and right asking me whether or not their credit was “safe.” My Facebook live videos on the subject got nearly 12,000 views. I was trending for about two minutes. It was a thrill! My message in the videos was simple. It went something like this, don’t panic. Instead, take steps to freeze your credit but more importantly, check it regularly.
While I do not check my credit score, I keep regular tabs on my credit through checking my credit reports. That’s the critical message here. Checking your credit score, well… meh. Now, checking your credit reports, that’s different. I preach that all the time. You should be doing that regularly. Seriously. You see the distinction between credit scores and credit reports, right? Maybe this will help drive the point home, your credit score is calculated from the information contained in your credit report. Bazinga! That’s where the magic happens. The beautiful thing is you can check it for free at the three credit reporting agency websites. I suggest you start doing it now, if you haven’t already.
Now that we’re clear on credit scores versus credit reports, it’s time to think about why our credit scores matter so much to us. My argument is that we are conditioned to care about our credit scores. Think about it. How many commercials have you seen about services that monitor your credit score in the last thirty days? I’m sure we can all sing the jingle, right? How many times have you seen stories about “data breaches” in the news, lately? What did you hear your parents say about their credit scores when you were growing up? My parents were constantly talking about debt and credit when I was a kid. Society conditions us to believe that we need to have the highest credit scores possible or we won’t be able to, say, move out of our parents’ house. I call baloney on that one!
Here’s the truth about credit scores, they only matter if you need to borrow money. That’s it. Now, we need to borrow money for big purchases that we couldn’t pay out of pocket for, like mortgages or car loans. So, to that end, you do need to keep your credit score up. How do you do that, you may be asking? Well, here’s the magic button. To have a good credit score (and maybe even a great one), you just need to get better at managing your money. If you practice some simple money management techniques like making a budget and sticking to it, living within your means, saving a percentage of your gross income and etc., your credit score will generally take care of itself. So, make a budget and relax. You got this!
Spend well, my friend!
The Dollar Lama
P.S. Make sure you check out my online courses, books and resources, too! Investing in your money management education is an investment in yourself. That’s the best investment you’ll ever make, I guarantee it! Don’t forget my weekly Facebook live videos on Facebook.com/newcashview, Instagram @joyalfordbrand and on my YouTube channel NCVTV. You can catch me twice, on Mondays between 3:00 p.m. and 4:00 p.m. for my Monday Money Management Minute and Thursday evenings between 7:00 and 9:00 (Eastern Standard time), for my weekly NCVTV episode. They are packed full of useful and entertaining money management information! If you’ve missed any NCVTV episodes, you can see the latest on newcashview.com or you can check out my YouTube channel and get caught up! You can get there by clicking here. Remember, like and share the NCVTV videos on Facebook and all your social media platforms, so others can benefit from them, too!
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