Credit scores are important because they effect the interest rates you pay on everything:credit cards, car loans, mortgages, lines of credit, etc. Credit scores and credit reports can also effect your success or failure in landing jobs or obtaining leases on an house, townhouse, or apartment.
If you know your credit score (FICO score), and it’s 770 or higher, you have an excellent score and are in great financial shape. If your credit score is 720 to 769, you are in good shape, but could benefit from an upgraded score. Finally if your credit score is below 720, you should strongly consider fixing your credit score.
I have some personal experience with credit score improvement and repair. When I met my girlfriend and eventually found out her personal finance situation I had to take a deep breath. She had $13,000 in credit card debt and credit score of 630. One year later she had a credit score of 750 and almost zero debt. I provided no money to her… just advice and emotional support. Today she is kicking butt and her credit score is well north of 770.
How’d we do it? Pretty simple. By making minimum payments to the low-interest accounts and throwing any left over money towards the highest interest account. After a couple months, and an improved credit score, she took out a line of credit that was lower than her other rates. She used it to pay off her highest rate card which was charging an outlandish rate of near 27%. She kept making timely minimum payments to her lower-rate balances, while throwing almost all leftover money at the cards with the current highest rate. As her credit score improved she was even able to call up and negotiate lower rates with some of her credit card companies.
I am Mr. Finance. When I initially learned of her credit and debt situation I was taken for a loop. I called my dad, Mr. Finance Senior, and confessed my discomfort. Wise man that he is, he counseled me on observing how she adapts to my financial advise. Since all else with her was wonderful, I held my breath and watched and waited. Long story short, she did great. I am so proud of her.
Not only is she now past her debts; she is thriving. And because she did it herself, she has learned to “grok” a healthy financial lifestyle. We are still happily (even blissfully) together.