Richie Rich Part 2 (It's not about the lottery and it's not another horoscope!)

So in the last blog I wrote about several key components related to finances. In this blog I want to share with you a little bit about credit. Most people know that having good credit is important but I don't think they realize just HOW important it is.

An example is given at Credit Info Center on how bad credit can impact your interest rates, payment amounts, and downpayments. It's a really great article that I encourage you to check out. One of the examples shows how someone with poor/bad credit winds up paying nearly $10K more for an identical vehicle as someone with good credit. So let's say you don't have bad credit....you just have NO credit. That's good right? No credit has to be better than bad credit? Wrong. Bank Rate shoes how bad credit and no credit are very similar in the way they impact your purchasing power. Getting to understand how credit works is a step towards good credit.

Let's say you know you have credit but you have no clue what it looks like. There are several websites that I would recommend checking out to get a handle on your credit overview. Credit Karma is a great place to start. There are no fees to sign up. It gives you a look at what accounts you have open, your limits, how close you are to reaching your limits, and more. There are also tons of articles to help you out. Another place you need to look is at your actual credit reports. Credit Karma is great but often misses information (in my experience) or is not 100% accurate on your score. Annual Credit Report also offers a free report from the major credit agencies. One down side to this site is you can only get your free report once a year. I suggest getting one report every 4-5 months so that you are not going a whole year without a comprehensive report.

Now you know where to find your credit. You need to determine what's next. Do you need to improve or simply build? The first start to building credit is getting credit (hard without having credit huh?) I recommend either a small credit card, a secured credit card, or a small personal loan. Often you will have higher rates with these first accounts but as your profile grows your rates will get better. As you build don't go crazy. Taking out every offer you get just because you can will backfire on you. A credit score takes into account how long your accounts have been open. So if you wind up with ten accounts less than a few months old that's going to look risky to a lender.

Let's say you are wanting to improve your credit. One of the best ways to do that is to begin making payments on time and not going over your limits. If you do that and you still aren't seeing an improvement then you need to start lowering your debt.

Lowering debt can often seem daunting but it's a huge factor that lenders look at when making decisions on loans and such. There are a ton of ways to lower your debt but the one I've found to be most successful is the snowball method. Dave Ramsey has a very simple to follow formula (plus he has tons of other financial advice on his site). Again, there are other ways to do it (some people attack their debt based on APR and not on balance) you will just have to look around and see what works for you best. I've seen tons of articles or blogs where normal 9-5 people have paid off thousands of dollars worth of debt in a matter of months or just a few short years.

Now that I've shared with you a bit about credit hopefully you have an idea of what you want to do to start building/repairing credit (Side note....NEVER PAY a company for credit repair. You can do it on your own with a little time and effort or there are free services to assist you in that). In the next post I'm going to cover a little bit (I'll try and keep it brief) on savings, earning extra money, and a few other things that go into a solid financial plan. Until then....be blessed!