Just recently I was speaking with one of my more affluent clients who wanted to lease a new vehicle and could not! Why? Her credit score was not high enough.
Whether you are wealthy or not, having a bad credit score can cost you hundreds of thousands of dollars over your lifetime. Suppose two executives who have worked at the same company for the same amount of time and earn the same salary both are in the market to finance a $300,000 home. One executive has great credit –above a 740 and finances the home at a fixed rate of 4.8% for 30 years. The other executive has fair credit—around a 620 and finances the home at a fixed rate of 6.2% for 30 years. Over the life of the loan, the executive with poorer credit will pay $92,880 more than his fellow colleague.1 Take a moment to think about the impact of this amount of money. Where could this money be used to better serve him and his family? ….his retirement, his children’s education, a second home? Now add to this number the extra money he would be paying for his car loans, credit cards and even home and auto insurance. This is a six-figure impact on his life! By the way…his credit score of 620 is a result of what limits his credit card companies are reporting to the bureaus and the amount of money he puts on these cards each month (also known as his “utilization rate”).
Maybe your credit score is poor because of an error, identity theft, bankruptcy, hospital bills or just simply ignorance of how the credit bureaus work. I speak with many individuals that believe they must carry a balance on their credit cards to obtain good credit… or just the opposite: they’ll tuck them away and never use them. Neither of these beliefs is true. The credit bureaus do not know whether or not you pay your balance in full every month or make monthly payments. On the other hand, if you don’t use your credit cards, they become inactive and hurt your credit score. These are just two common myths of how the credit bureaus calculate your score with this information. There are several! The point is your credit score is what it is for a reason, but you CAN change it.
How? First, find out where your credit stands…and I don’t mean request your credit score from an online ad. Most likely the score you pull will not be entirely accurate or detailed enough to help you. Go to a site such as www.annualcreditreport.com and view your full credit report. This particular website allows you to pull your credit report from each of the three reporting bureaus once per year. Know what is being reported about your credit. Then, work with your Life Consultant to find and resolve any gaps, errors and/or prior delinquencies. I cannot express to you the importance of working with someone who knows the facts. Making assumptions can cost you six-figures. For instance, if you have a collection notice or have had a charge-off reported to the bureaus…you will need to know who to negotiate with, what you need to say and the difference between obtaining a letter of deletion or a letter of payment. These pieces of information could be the difference in great credit or poor credit for 7 years from the date when the delinquency was first reported. Lastly, work with your Life Consultant on a structured plan to sustain great credit.
Whether you are wealthy or not, your credit can have a huge impact. In fact, the more wealth you have, the more damage your credit score can cause to your Life. The difference of one little point can mean thousands of dollars. You have heard me say this before and I adhere to it…You don’t know what you don’t know…and it’s what you don’t know that will hurt you! What is it that you don’t know that you need to know?