August 24, 2017
Earlier this Spring we collectively hit a financial milestone. FICO, the company that computes the credit scores most used by lenders, reported that for the first time ever the average score rose to 700.
Good news? Sure. But clearly not great news. FICO credit scores can range from 300 to 850. The higher your score, the better financial shape you will be in, as it helps you qualify for the best loan terms and credit card deals. A score of 700 is certainly better than 660 or 690. But I want you to aim for a score of at least 750.
That’s the level where you will be a candidate for the best deals. For instance, the interest rate on a 30-year fixed rate mortgage recently was about 3.6% for someone with a 750+ FICO score, 3.8% with a FICO score of 700 and 4% with a FICO score between 680 and 700. That might sound like small differences, but it adds up. On a $300,000 mortgage your monthly costs could be at least $60 less with a top-tier FICO score. That’s $720 a year in savings. I bet you could think of plenty of ways to save, or wisely spend that annual savings.
A 750+ FICO score also makes it more likely you can qualify for balance transfer credit card deal, or a car loan with the lowest possible interest rate.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
Credit & Debt, Saving, Investing, Retirement