5 Ways a Better Credit Score Leads to Better Finances

BookkeepingEverybody knows that you want to have the best credit score you can.  Why?  Because the better your credit score, the better the rates you can get on your loans, of course!  But, did you know that there are other reasons to try and improve your credit score?  In fact, here’s five ways that having a better credit score can lead to better finances.

  1. More money.  This is the obvious one.  A better credit score leads to better rates on loans (see above), and better rates lead to less interest paid over the life of the loan.  And less interest paid leads to…  (wait for it) a  better bank balance!
  2. Better rentals.  It’s a sad fact that many landlords are doing credit checks on prospective tenants these days.  They’ve got assets to protect, so it’s a smart move for them, but the fact that there are so many landlords out there getting burned that it’s become necessary is sad.  But, having a good credit score can help make sure you don’t get turned down for that great apartment down by the beach!
  3. Quicker payoff.  This one goes really closely with the first point.  With those lower rates, and lessened interest also comes the ability to pay the loan off quicker.  And, of course, a quicker payoff means a much better financial situation.  Especially if you avoid any new loans afterward.
  4. Any loan you like.  If you must loan money, at least do it smartly.  With the current state of affairs, you can’t just walk in and get a loan that has a pulse as it’s only requirement.  In fact, many banks and credit unions are cutting way back on their sub-prime lending for anything.  (P.S. the term “sub-prime” doesn’t just apply to mortgage loans) If you have poor credit, it’s much more likely, today, that you’ll get turned down for a loan altogether.  Better credit means that if you really need a loan, you probably can have one.
  5. Less fees.  We all hate fees.  Well, all of us except the financial institutions.  A growing number of them are making a growing amount of their revenues from fees.  And many have moved to an account structure that is based off of risk.  And risk is determined by credit score.  A lower credit score could mean an account with higher fees, or with monthly fees that some accounts might not have, while a higher credit score might qualify you for a different account without those fees.

So, you see, having a good credit score can really send your finances in the right direction.  And, having a bad credit score can really send them into the dumps in a hurry too!  Unless you’re very dedicated to the extreme frugaler lifestyle, and never plan on really using money, it still pays to have a good credit score.  It doesn’t take much to build it, and you might be glad you did someday.

photo credit: o5com

We’re All Financial Optimists, and It’s Hurting Our Bottom Line

Are you an optimist or a pessimist?

Do you see the glass half full or half empty?

No matter your answer, I have a secret for you.  We’re all financial optimists, and it’s hurting our bottom line.

Don’t believe me?

I didn’t expect you to.

You might say, my finances are a mess.  I have debt; I’ve pulled money out of my 401(k).  I’m definitely not a financial optimist.

But, I’d argue that you are.  When you look into the future, you don’t see bankruptcy and years of the same financial mess.  You likely think that eventually things will get better, and you make decisions based on that.

If your financial situation isn’t that bad, you’re probably even more of a financial optimist.  Say you’re getting ready to buy a house, and you know that your limit is a house that costs $250,000.

You find the perfect house.  The problem?  It costs $270,000.  Still, you decide to buy it, even though you know you can’t afford it.

What do you tell yourself?

  • It’s in a good neighborhood, and the house will appreciate.
  • In just a few years, inflation will make your now nearly unmanageable payment much smaller, and paying it won’t be such a hardship.
  • You’re just starting your career, and in a few years you’ll be making a lot more money, so the house payment will be easier to afford.

Sound familiar?

Just a few years ago, millions of people thought their houses would appreciate, and then they were caught up in the housing crisis.

Houses don’t always appreciate, but we optimistically think ours will.

Sure inflation will make your house payment more manageable, but you’ll have other expenses in a few years that you’re not thinking of because you’re thinking optimistically.  In a few years, maybe you’ll have a few kids to fill that house, and they’ll cost a lot of money.  You’ll be spending more on food, health care, transportation and day care, just to name a few things.  Suddenly, having a manageable house payment doesn’t really make a financial difference because you’ll have so many other expenses competing for your money.

If you’re lucky, your career will soar, and you’ll make more money, but that doesn’t always happen.  You might get laid off and have to find a job that pays less.  You or your spouse may decide to quit so one person can stay home with the kids.  Or, maybe you do get raises, but at the same time your health care premiums go up every year so your pay essentially stays stagnant.

Of course, thinking optimistically is beneficial to our mental health, but for our financial health, recognize that thinking optimistically hurts your bottom line.  When you get ready to make a large purchase like a house or a car, don’t forecast into the future.  Determine if you can afford the item now, in your current situation.  If you can, you’ll tie up less of your future money and benefit from this.  If you can’t, it’s best to pass it up.

How Much Car Insurance Coverage Do You Need?

The following post is sponsored by Swiftcover car insurance

Car insurance, like most insurances, can seem complicated.  Deciding just how much car insurance coverage you need is the biggest hurdle.  Of course, it’s easy to select the coverage that meets the requirements of your state and the lien holder (of you owe on a loan for the car, you’ve got a lien holder, and it’s likely the bank you borrowed from), but those aren’t the only factors to take into account when deciding on how much coverage you need.  In the end, you’ve got to find a coverage that will meet those requirements, and also fit within your budget.

State Requirements

You’ll want to know what the state requires you to have for insurance.  Any local insurance provider should be able to tell you, but you’ll want to double check if you’re planning on using an out of state or online provider.  If you still owe on your car, the lender on your loan will likely require that you have full coverage, so the state minimums will likely only come into play if you own the car you’ll be insuring.

Lien Holder Requirements

If you owe on your car, you’ve got a lien holder.  The lien holder is whomever you borrowed the money from.  Most (if not all) lenders will require that you carry full coverage insurance on the car.  It has nothing to do with them wanting to make sure you’re safe, and all to do with making sure that should you get in an accident, that they’ll get some of their money for the loan.  While most lien holders won’t require a certain level of insurance (over full coverage), it is a good idea to find out what they require just to make sure that you’re getting the coverage that you need.

Deciding on Coverage Levels

Car AccidentOnce you know the requirements of the state and any lien holders, you’ve got to decide on the level of car insurance coverage you want.  There are two ways to look at this.  The first is that you’ve got to find a coverage and provider that is affordable enough to fit into your budget.  The second is usually the forgotten way of looking at insurance.  The coverage doesn’t just have to fit into your budget, it also needs to cover you against a total loss.  If you have full coverage, but it’s only enough to cover a portion of what you owe on the car, you’ll also want to look at something that’s usually called “Gap Insurance”.  Gap insurance is aptly named in that it is designed to cover any gap between the value of the car and the remaining loan should the car be totaled before you pay it off.  Car insurance can be a combination of three coverages.  A liability coverage (usually what States require), Comp & Collision, and personal injury.  The exact levels that you need will vary based on your situation, but your insurance provider should be able to make recommendations for you.

How Much Deductible for Car Insurance

One of the easiest ways to lower the monthly cost of your car insurance coverage is to raise the deductible on your policy.  This method is a bit of a double-edged sword, however.  Raise it too high, and you might not be able to afford to have the car fixed.  Or, anything short of a major collision may fall under the amount of the deductible.  Again, your insurance provider should be able to help you compare the different deductible levels and help you find one that fits your budget without breaking you if you get in an accident.

The level of coverage that you need is going to be drastically different based on your own individual situation.  Do you own your car, or owe on your car?  Do you have sufficient savings to cover a higher deductible in an emergency?  What are the requirements of your state and any lien holders?  Make sure you know all that information before you go looking for car insurance, and remember to double check any suggestions by an insurance provider.  We’d all like to think that they are all honest, but not all of them are.  Knowing at least a little about what you’re talking about, and the information required to ask informed questions is a huge step towards not getting taken advantage of.

How much do you know about car insurance?  How much have you learned since the first time you bought insurance?

img credit:stupid.fotos on Flickr.