2654: How a Good Credit Score Helps You Build Wealth by Amy Beardsley on Good Financial Habits

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[00:01:08] How a good credit score helps you build wealth by Amy Beardsley with smartmoneymamas.com. And I'm Dr. Neil Malek. Hello and welcome to our Sunday bonus episode where I share an article from one of the other podcasts in our network. Today's post comes from Optimal Finance Daily,

[00:01:26] where articles covering money and personal finance are read to you every day. And you can find Optimal Finance Daily wherever you're listening to this. Please subscribe or follow to get episodes every day. And with that, here's Diana with the post and commentary as we optimize your life.

[00:01:48] How a good credit score helps you build wealth by Amy Beardsley of smartmoneymamas.com. A healthy credit score is the foundation for building wealth, but knowing exactly what steps to take to improve your credit can be confusing. Not to worry. We're going to walk through a few

[00:02:07] expert strategies to improve your credit so you can leverage that strong score to build lasting wealth no matter where you're starting. How to improve your credit and build wealth. Your credit health is one of the most essential pieces of your financial puzzle.

[00:02:23] If you have bad credit, every other aspect of your life can feel difficult and expensive. But in many cases, your low credit score might not even be your fault. Many mamas see their credit scores drop after facing unexpected medical bills or other overwhelming financial emergencies.

[00:02:41] Or maybe you didn't have the credit knowledge you needed. Either way, it's okay. No matter how you got where you are, there's no judgment or shame here. Just excellent credit strategies from the frugal credinista, Nativa Heard to help you get back on top of your financial game.

[00:03:00] Why credit health matters. Your credit is more than a three-digit number. It's a satellite view of how you handle your money. A great credit score has many benefits and can impact your

[00:03:12] life in ways you might not realize. Number one, it saves you money. If you have good credit, you can qualify for better or lower interest rates and pay fewer fees, leaving more money in your

[00:03:25] pocket for investing or even saving for an emergency fund. Number two, it helps you own or rent a place to live. Mortgage lenders and landlords are cautious when it comes to applicants with low

[00:03:37] credit scores. They could look right over you and jump to the next consumer with the good credit score. And number three, it helps you build wealth. It sounds weird that good credit helps you build

[00:03:49] wealth, but access to lower fees and interest rates can free up more money to put towards building wealth. Being the smart money mama you are, using your credit to save, own, and build is key.

[00:04:03] Why you need a credit score. It might surprise you to know that one in five consumers don't have a credit history or score at all. Why not? It just means they aren't using credit, but having no

[00:04:16] credit can hurt you too. So if you don't have a credit score, whether you're young and haven't had time to build one, or you're older and don't want to use credit anymore, don't try to establish it

[00:04:26] all at once. If you go too fast, you'll defeat your efforts because many lenders will assume you're a high risk and won't lend to you. Instead, take your time and limit the number of inquiries on

[00:04:38] your credit report. This approach helps you build your score slowly and steadily, just how lenders want it. How to recover from bankruptcy. You might be afraid of filing for bankruptcy, but it's not

[00:04:52] the end of the world for you. You can recover with some time, patience, and changes to the way you think about your money. Get everyone, your spouse, kids, family, and friends on board with your new

[00:05:03] frugal goals. Know where you can shop and what you can afford. Maybe skip that expensive vacation this year or hold off on buying that car if you can. And be honest with yourself. Think about

[00:05:15] your dreams and goals and align your finances to match your values. Sometimes bankruptcy is the best choice for your finances. Don't get stuck in the stigma or shame. Instead, get all the information

[00:05:27] you need to make the best decision for you and your family. Baby steps to keep increasing your credit score. Whether you're recovering from bankruptcy or trying to get your credit into the

[00:05:38] 700s, taking the right steps can help you get where you want to be. Keep credit utilization low by spending less than 10% of your available credit. Check for errors on your credit report and dispute

[00:05:51] them. Look for identity theft and report it. Open new credit cards only when you have a purpose for them as a tool, not a way to spend more. And drop cards and lines of credit that are no longer serving

[00:06:04] you and get another that will grow with you. You can get a free copy of your credit report from all three major credit bureaus through annualcreditreport.com. Reviewing your file can help you spot

[00:06:17] identity theft and fix errors that might be dragging your credit score down. The best way to lower credit utilization. Credit utilization is the second largest portion of your credit score, so getting

[00:06:29] it down is vital. If you have high credit balances, you have a few options to get out of debt and lower your credit utilization. Number one, consolidation. You might take out a personal loan to pay off your credit cards. Doing this eliminates all utilization, which can help your

[00:06:47] score. Just make sure you can afford the payment before choosing this option. Number two, balance transfer. If you have decent credit, you might qualify for a 0% APR balance transfer credit card. This lets you pay zero interest for a limited time. Balance transfers are riskier because you'll be

[00:07:07] charged interest retroactively if you don't pay off the balance before the introductory period expires. And number three, use a debt payoff strategy. You might use the debt snowball, debt avalanche, or other method to pay down your credit lines. Whichever method you choose, make

[00:07:26] sure that you're comfortable with it and will stick to it. Improving your credit score, the bottom line. Improving your credit score is a lot like becoming a mama. You need patience and consistency. If you

[00:07:39] go all in and make several changes over a short amount of time, your efforts can backfire. Small baby steps to improve your credit are the most effective. And remember, it won't happen instantly.

[00:07:52] But with the right approach, you could see a significant jump in your credit score in about 12 to 24 months. You just listened to the post titled, How a Good Credit Score Helps You Build

[00:08:07] Wealth by Amy Beardsley of smartmoneymamas.com. I have to say that while I have a high credit score, it's never been something that I've been really focused on. I see it as the natural result of

[00:08:21] good financial habits that benefited me when I bought my house a couple of years ago. I also think it's important to remember that a credit score isn't really a good indicator of your financial health. It's simply an indicator of your ability to pay back the money you borrow.

[00:08:38] I used to think that having a high credit score meant that I was doing well financially, but you can be drowning in debt with a fantastic credit score if you make payments on time and have

[00:08:49] a low utilization of your overall available credit. A much better number to focus on is your net worth. I've been able to maintain a high credit score by putting most of my spending on

[00:09:01] credit cards and then paying them in full each month. But my reason for doing this isn't really for the credit score. It's more for the convenience and to get the credit card points. When it comes

[00:09:12] to your credit score, there's a point of diminishing returns. To qualify for the best rewards credit cards, a home mortgage with the lowest interest rates or personal loans with the best terms,

[00:09:24] you usually need a solid job history and income, a record of responsible credit use, and a FICO score of 720 or above. So while my 820 score might feel good, it's really not getting me that much more

[00:09:40] favorable terms. That'll do it for today and another installment of Optimal Finance Daily. Have a happy Thursday. Thank you for being here every day and listening, and I'll see you on the Friday show tomorrow where your optimal life awaits.