Friday, April 8, 2016

Why My FICO Score Is Important To Me


FICO scores are used to gage the risk to potential creditors when lending money.  A high score is better than a low one meaning that you pay your debts and obligations on time or early and you don't carry more debt than you should.  Insurance companies use it as a way to gage the risk of insuring someone with the idea that if you have a high FICO score you are responsible and less likely to act in a way that would require insurance pay outs.  Many employers will use it as part of the assessment in determining whether or not to hire certain applicants. 


Working in the accounting field I know credit scores were checked when hiring staff for the simple reason that if you didn't manage your money well or had declared bankruptcy you probably shouldn't be helping clients manage theirs.  Salespeople need to have a high score so their employers know they aren't risking their business or its assets, especially if that person carries inventory or company property.


When renting an apartment landlords check credit scores to determine if potential tenants are likely to pay their rent.  They can also check to see if they have had any claims or lawsuits settled against them for nonpayment of rents or any property damages.  Once again someone with a high FICO score demonstrates responsibility.


Mostly FICO scores are used for borrowing money and if you have a high score you are more likely to get the loan you have applied for, but also a lot of lenders will offer better interest rates.  This is especially true in the case of mortgages, automobile loans and credit cards.  Short term loans that offer no interest for certain time periods are becoming more prevalent as well.


My FICO score is quite high and as a result I am able to use lender monies quite often with no interest as is the case with my recent car purchase.  My money stays in my savings account while I use Nissan's for free.  I've similarly done this multiple times with short term 0% interest financing with Home Depot for appliances and building supplies for our home, PayPal for furniture and supplies for our home and credit card offers to help eliminate debt or finance larger purchases. 


Most importantly my FICO score tells me how well I am doing managing my credit.  I watch it regularly to make sure it remains high.  I love that with that high score I'm in a really good bargaining position to negotiate fees and interest rates and even prices.  I love that I feel confident I can walk into any financial situation from really strong position.  And I never have to worry about the embarrassment or distress from being told no.  I never like to be told no, no matter what the situation.  But especially when it comes to money and my goals.

Do you know what your FICO score is?  How do you view your credit health?



10 comments:

  1. Question-so let's say we need a new refrigerator and can get one at Lowe's or HOme Depot for no interest for lets say 24 months. You would do that instead of paying for it? This is something I struggle with. I assume then you would pay off early?

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    1. I would finance it for no interest and keep my money in savings. The key with these offers is to pay it off before the term is up and interest kicks in. I figure out my minimum payment needed to do just that and then add more each month as I can to pay it off early. I also only do one at a time to make sure I don't get over extended.

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    2. ok. I listen to Dave Ramsey a lot and he of course advocates paying cash for everything or debit cards but not credit cards for anything. Buying appliances would have to come out of our emergency fund if I follow his advice. I like how you do yours.

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    3. There are always differing opinions on this, but if you are well disciplined it works well. I've benefited significantly.

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  2. Lee Ann, I struggle with this also. Even though we can pay for things in cash, I always think, "Why not take advantage of free interest?" I am in agreement with Dave on a lot of things but this is somewhere that I think you need to weigh against your own circumstances. However, if someone already has tons of debt and are barely making it, you don't need to take on more debt. And if someone is irresponsible with credit cards, they should stick with Dave and only use cash. They just simply do not have the willpower to say no. They should tear up all cards. And a lot of what Dave tries to do is get people to stop getting back into debt after they climb out, its sort of like keeping weight off after losing! So, what my husband and I do if say we need an appliance, we ask if they are offering free interest financing, if yes we do it. Then I figure up how much to pay extra every week to avoid interest at the end of the term. Our goal is to pay off as soon as possible. Because it is always in the back of my mind that we have that outstanding debt....Sorry to be so long winded!!!

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    1. Thank you for sharing your view on this subject. You brought up a lot of really good points. Definitely, if you are upside down with debt already or struggle to pay your bills I don't think it is a good idea to take on more.

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    2. I also think in order to build up your FICO score don't you NEED to establish some lines of credit and use them responsibly? When a young person begins their life away from home they need to establish some credit to build up their score.

      This is a great post, I enjoyed reading it. My score is quite high as well and I'm very proud of that. :o)

      Tania

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    3. Good job Tania! And you are correct. You do need to use credit in order to rate it. :)

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  3. Thank you for giving me something to consider when it comes to buying those items that we need but have not saved up for. I know I should save to replace appliances and such but it's been tough for me to build up our emergency fund as it is since I was so bad with money for so long.
    I too have a very high FICO score and plan on keeping it that way.

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    Replies
    1. Good for you Lee Ann. Credit is simply a tool we use wisely and reap the benefits from.

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