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The Million Dollar Question

Good questions are worth being asked, smart questions are worth being answered, and brilliant questions are worth being explained. So here comes the million dollar question: What is Credit? What is a Credit Card? What is the meaning of a Credit Report?

It is a question worth asking, pondering, and understanding in its entirety. Your awareness in this important subject matter can catapult you to millions in equity and success, whilst ignorance and reckless credit handling can lower you to an abyss of millions in debt.

My name is Ruchy and I am a Consultant at Goldmine. We are at the forefront in educating the community about the benefits and pitfalls of good and bad credit. After all, knowledge empowers you to know your possibilities and proceed with caution.

So welcome to GoldMine. Let us begin our first meeting.

Create Your Wish List:

If you are bewildered and overwhelmed and consider this topic to be way over your head, rest assured. We will cover all concepts pertaining to credit in depth and with clarity. As a beginning, consider doing the following exercise. Take a blank piece of paper and create a wish list.

What is it that you dream about? What are those elusive far-fetched fluffs of wants, desires, and fantasies? Is it a Car Lease? A Mortgage for your very own palatial home? Some perks like expensive electronics and equipment? Some luxuries of a plush or exquisite nature? A dream vacation that will relax and rejuvenate you?

Now here goes. Remove the blindfold.

Open your eyes. This is not the world of make-believe, of whimsical childhood games. This is reality. Forethought, wise credit handling, and perseverance can help you attain your dreams. The magic wand in real-life is called Good Credit.

Good Credit- Even Greater Possibilities

Credit is the ability to obtain goods and services prior to payment based on the trust that payment will be made in the future.

Of course you’ll lend your vacuum cleaner to the neighbor that is trustworthy and returns stuff in pristine condition and in a timely manner. And no way will you lend that bike to the neighbor that is reckless and tardy in returning borrowed items. What is the difference? Trust.

That is why it is worthwhile to apply for credit and maintain good credit. It helps you establish trust. If you keep up a good record, pay your credit card responsibly you ultimately end up with stellar credit and obtain buying power and the ability to check off your wish list with ease.

The magic key to the castle of dreams is good credit. So here are the car keys to your shiny new Infinity, the blueprint to your spanking new house, your UPS Delivery of coveted goods, the ticket to your dream vacation. Acquire good credit. The doors of opportunity will open wide for you.

So What Is Your Score?

M.N., a recent client called into my office in a distraught state of mind. “I am just about to launch my first ever business venture and I am in need of capital funds, renting space etc. I have applied to several banks and rental agencies, but I have thus far been declined.”

“Well let us examine your credit score,” I advised.

His score was a poor 600. Of course he didn’t qualify.

So let’s explore the topic of Credit Scores and I will share with you my recommendations to him.

Real-Life Report Cards

A credit score is a numerical expression that is based and dependent on an analysis of a person’s credit files. It determines the creditworthiness of the person. The score that really matters when applying for credit is the FICO Score. It is a combined score on 6 months of your credit history (past 6 months and gets updated monthly) and is culled from 3 separate credit bureaus, Experian, Equifax, and Transunion.

So in layman’s language or as we say, in simple English, what is a Credit Score?

Consider the following analogy:

Your Credit Score is compared to scores on a report card, and the three bureaus can be compared to your teachers and principals who collect your marks and reward you with a final score. Good Scores on a report card help you obtain the honorary and desirable roles of valedictorian, G.O coordinator etc. They also earn your respect in the school hierarchy; a request of absence or of taking a test at a later date will carry weight, for you have proven yourself. It will also serve you well when applying to schools of higher education.

So What Is Your Score?

Report card scores are allotted for academic prowess, good behavior and effort.

Credit scores are allotted when examining several factors of your credit history which are:

35% Payment History - The factor that has the biggest impact on your score is whether you have paid past credit accounts on time. However, an overall good picture can overweight a few late payments which will continue to have less impact over time unless the late payment is a mortgage payment

30% Amount Owed-Utilization - Having credit accounts and owing money doesn't mean you’re a high-risk borrower. But owing a lot of money on numerous accounts can suggest that you’re financially over extended and may be more likely to make some payments late or not at all. Part of the science of scoring is determining how much debt is too much for a given credit profile

15% Length of Credit History - In general, a longer credit history will increase your credit score because it shows you can responsibly manage your available credit over time, however, even people who have not been using credit very long may get high scores, depending on how the rest of their credit report looks

10% New Credit - People today tend to have more credit and to shop for credit more frequently. But opening several credit accounts in a short period of time can represent greater risk - especially for people with short credit histories. However, credit scores are able to distinguish between a search for many new credit accounts and rate shopping. FICO scores generally do not equate your rate search with higher credit risks

10% Types of credit-Revolving Account (credit card) charge card, Loan, Mortgage. Your credit score will reflect a combination of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. While a healthy mix will improve your score, it is not necessary to have one of each, and it is not a good idea to open credit accounts you don’t intend to use. The credit mix usually won’t be a key factor in determining your score, but it will be more important if your credit report doesn't have much other information on which to base a score

Scores range on a scale of a low 350 to a high of 850, with the majority of people in the 600 to 800 range. If you do not possess a loan or mortgage, your highest rating can be just around 800.

To get the most favorable interest rates, you’ll need a score of 720 or higher, a person with a credit score of 520 will get interest rates on loans that are three to four percentage points higher than rates given to a person with a credit score of 720.

So are you an “A” Outstanding student? Can you be entrusted with loans, leases etc. I have had a desperate client complain: “But I was a failure in school. I was hardly a passing student.”

Rest assured. In the school of good credit it hardly matters if you were an academic star. A good score is strongly dependent on grit and responsible credit handling.

Briefcases and notebooks aside, let us be outstanding students and let us start working on our Credit Score.

So does your report card make you and the Big Banks proud??

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