Credit History: A Pillar of Financial Success

Having excellent credit history has never been as important as it is today. In this generation more so than others, your credit score has effects, negative or positive, on several different important factors in your life — from determining whether you’re eligible to apply for your dream apartment to receiving decent rates on various types of insurance. Due to the continuous changes in the credit-driven society that we live in today, it’s impossible for me to overemphasize the importance of establishing a solid credit history and knowing your credit score at all times.

Now to test if you were reading the first paragraph carefully, at the very least skimming it, here is a credit-related trivia question for you (in less generic terms). Not to mention, this analogy also serves as a SAT prep question for your child — which reminds me, are you thinking about (or starting to save for) college yet? Can you say t-u-i-t-i-o-n?

Credit history is to financial security as:

a.) Middle relief pitcher is to baseball team
b.) Utility infielder is to baseball team
c.) All-Star starting pitcher is to baseball team
d.) Backup catcher is to baseball team

And the correct answer is … drum roll please… C (for credit; go figure).

Owning a good credit score is as vital to achieving financial security as Johan Santana — the 2006 American League Cy Young Award winner — is to the success of the Minnesota Twins in the 2007 season. And lucky for you, unlike general managers who have to trade (and spend exorbitant amounts of money) for a pitcher of Santana’s caliber, you can easily find information on how to establish, improve, and maintain an All-Star credit score by clicking here.

In news from the world of credit today, consumer and civil rights groups publicly condemned a congressionally-mandated report on insurance credit scoring that was recently released by the Federal Trade Commission.

Recent studies — from the Missouri and Texas Departments of Insurance — have discovered that certain types of insurance scoring “discriminate against low income and minority consumers because of the racial and economic disparities inherent in scoring.” The Missouri study even alleges that “a consumer’s race was the single most predictive factor determining a consumer’s insurance credit score.”

To hear what people are saying about the biggest controversy in credit today — the Michael Vick scandal of credit reports and scores — click here.

College Students (or those who wish that they were still in college, but in reality only pay for their children to attend): In her column today, Eileen Ambrose, a financial columnist for the Baltimore Sun, discusses why “it pays to shop for student loans.”

Per Ms. Ambrose:

“Americans love to shop. After all, we made The Price Is Right the longest-running TV game show.

But when it comes to shopping for student loans — a complex product with hundreds of lenders to choose from — we would rather have someone else do the legwork. Now, we've learned, that can be a problem.

Colleges for years have compiled lists of recommended lenders to help families navigate a maze of options. An investigation by the New York attorney general's office, though, uncovered chummy financial relationships between some financial-aid officers and lenders promoted on schools' lists. Suddenly, doubts popped up over whether such lists were compiled with students' best interests in mind.

The moral of this story: You have to do some of the work yourself if you want to make sure you're getting a good deal.”

She is right about a lot of things in the above few paragraphs, but two things stick out in particular. And yes, we all do love The Price is Right.

1.) Americans love to shop. This could be more of an understatement than saying “Howard Schultz, the king of Starbucks, had a strong business model in mind before he created a coffee empire.”
2.) Yet for some people, shopping for the right college loan is worse than going to the dentist. With more lenders to choose from than there are pizza shops in the greater New York City area, it's hard to know where to look.

But as the bold sentence in Ambrose's paragraph above proves beautifully, you NEED to conduct a thorough search into finding the right lender. If you like saving money (five words that don’t often appear in a sentence that discusses the cost of college) and honestly, who doesn’t, you need to do the work yourself. For the best tips on what steps to take, I recommend reading the entire article.

If you were looking for more SAT prep or a riveting trivia question at the end of the post, I'm sorry to disappoint you. I guess you’ll have to check back frequently. And to have all of the latest information on credit reports and scores sent directly to you, subscribe to our reader — the perfect RSS feed for your iGoogle homepage.

Beware! Co-Signing Could Tarnish Your Credit History

Suze Orman (www.suzeorman.com)

Will my credit score go down if I marry someone with a bad score?

Kimberly Lankford, the credit guru herself, answers this question in today’s “Ask Kim” section on Kiplinger.com.

Per Ms. Lankford.

“Not necessarily. There are no joint credit reports or scores, so getting married in itself won't lower your score. But becoming a co-signer on an account with a bad history will tarnish your record. Lenders will look at both credit histories if you apply for a loan together. And the bad one could carry more weight. See if you can qualify for the loan with only one income, or wait to apply until your spouse's score improves.”

In case you zoned out during the last paragraph (perhaps due to a hatred of Italic font): DON’T CO-SIGN AN ACCOUNT WITH SOMEONE WHO HAS POOR CREDIT HISTORY! It doesn’t matter who it is — your friend, significant other, or spouse — think it over before co-signing with anyone, loved ones included. In the wrong situation, co-signing an account could dramatically tarnish your credit record.

WARNING: Refusing to co-sign an important account with your spouse (due to her/his bad credit history) could be detrimental to you marriage. Side effects include: being forced to sleep on the couch, constant fighting, nagging, and in some rare cases, divorce.

But look at it this way; if and when you do become single because of a refusal to co-sign a loan with your (at this point, former) spouse, you will still have a strong relationship in your life — with lenders, because of your excellent credit score. This will greatly improve your chances of finding a hot date — as unlike the majority of trendy ways to attract singles out there, having good credit is always in season. In the world of single life, this could prove to be invaluable to you.

Personally, I think that co-signing a loan is never a good idea. Suze Orman, the best-selling author and Emmy award-winning TV host, agrees.

In other news, there was a great article — focusing on the recent credit survey conducted by the Opinion Research Corporation in association with the Consumer Federation of America and Washington Mutual — that appeared in the Washington Post this weekend. In my previous post on this blog, I discussed the survey in great detail. But Nancy Trejos, a veteran staff writer at the newspaper, puts me to shame in her column.

Per Ms. Trejos.

“The percentage of those who know the purpose of credit scores — to show their risk of not repaying a loan — rose only from 27 percent to 29 percent since 2005. The percentages of respondents who incorrectly believe that income, age and education influence their scores increased. In addition, many said they believe that their state of residence and ethnicity affect their scores. They do not. Their debt-to-income ratios, payment history and credit lines do. Perhaps most disturbing to those who commissioned the survey, only 24 percent know that the minimum score typically needed to qualify for a low-cost mortgage is 700.”

And Kimberly Palmer, a columnist for U.S. News and World Report, is reporting “credit scores are growing in importance.” Palmer’s article, which also discusses the recent survey, is a must-read for all you credit junkies out there.

Why do journalists from the nation’s most acclaimed newspapers and talking heads in the mainstream media constantly discuss credit history, reports, and scores? The answer is simple: establishing and maintaining a strong credit history is crucial to every person who desires financial security.

In the credit-driven world that we live in today, you need to know your credit score at all times. For access to a FREE Triple Credit Report right now, click here.