Who Should Check Their Credit Scores And How Often?
I am a big fan of everybody checking their credit scores at least twice a year regardless of their borrowing needs. The world is a sinister place where greedy corporates go to no ends to crush you for being late on any payments you’ve made, no matter how small. There are also an endless amount of identity thieves out there who will take advantage of unassuing people.
Some corporates will purposefully let your late payment sit for years before they can come after you because that way, they can tack on huge fees and really rip you a new one when they finally get a hold of you.
Just go ask the IRS what they like to do about erroneous tax returns. They’ll wait 3 years to let you know that you made a mistake on your tax returns. In those 3 years, they will have tacked on an usurous interest rate penalty 100X higher than the savings rate you can get in your money market account. Why? Because they can and will bank on your fear to pay the money and shut up!
Why do you think the IRS tax code is 70,000 pages long? To confuse the crap out of you and make you make mistakes so they can assess you penalties! That’s right. The world is a sinister place and you need to be protected by educating yourself and consistently checking your credit score at least twice a year to see if it’s getting dragged through the mud.
REASONS WHY YOU SHOULD CHECK YOUR CREDIT SCORE REGULARLY
* You plan to buy a house. For first-time home buyers, checking your credit score before your mortgage company checks is particularly important. You are about to buy the most expensive asset of your life and you don’t want to be rail-roaded like I was 90 days into the process! Furthermore, you don’t want to be embarrassed by your mortgage officer who rejects you after discovering your credit score is too low. If your credit score is below 700 after checking on your own, I would suggest not buying a property until you can get it over 720-740. The average score for a rejected mortgage applicant is 729!
* You plan to refinance your mortgage. If you can refinance your mortgage now, do it! The 10-year yield is at an all-time low at 1.65%, and you can get 30-year fixed mortgages for under 4%, and jumbo 5/1 ARM rates for 2.75% or lower. Check Quicken Loans for the best rates given they are entirely online based and have the lowest overhead costs. I just checked and they offered me a 5/1 ARM for 2.625%! The biggest issue is that refinancing your mortgage nowadays still takes FOREVER going the non online route. My latest one w/ Citibank took 100 days, and I thought I was going to blow my brains out after the 90th day. It was a big joke! You don’t want to be on the 100th day of your mortgage refinance only to learn later on that some late payment on your credit derails the entire process.
* You plan to buy a car. No matter how hard I try, I don’t think the majority of people will follow my 1/10th rule of car buying which states that you should spend no more than 1/10th of your gross income on the purchase value of a car. However, getting a car is a necessity for many, and only a minority of people pay cash for a car. Car lending rates depend on your credit score just like anything else. If the car dealership is charging you more than 3%, with the current 10-year risk free rate at 1.65% (2012) and the Fed Funds rate at 0.25%, you are being charged too much because your credit score is too low.
* You plan to open up a new credit card even though you can’t pay in full. Credit cards have the highest borrowing rates around. I’ve got a 790 credit score and my two credit cards have an interest rate of 10% and 10.5%, respectively. Paying 10% is a ridiculous rate in this current environment given how low prime rates are now. If you have poor credit, you can easily expect your rate to be 15-20%+. If you get in that negative cycle of owning credit card debt, you will experience immense difficulty getting out because your income and rate of return on your money will be way less than your interest rate.
* You want to keep your business partners honest. Whenever you go on credit, you will be charged a certain interest rate that is based on your credit score. Knowledge is power. If the company you are planning to borrow from is charging you an outrageous interest rate, you need to know whether the charge is justified. If you have a 760 credit score and they are trying to gauge you, then you probably should not be purchasing anything from that company! Remember, the business world is a scary place sometimes.
* You want to protect and maintain your good identity. Identity theft seems to be more and more common nowadays. If someone unfortunately gets a hold of your identity, they will likely try and spend as much of your money on credit as possible without getting caught. When they max out your credit, they’ll then move on to their next victim. By monitoring your credit score, you have a much better chance of protecting your identity and maintaining your score.
* You might get married. Here’s an interesting one which is coming up more often for couples. If you’ve found someone you plan to spend the rest of your life with, it’s best to check your credit score to see if you have room for improvement. Married couples join their finances, and if you have bad credit you might cause trouble for your partner, or your partner might decide to delay marriage or not marry you! Check your credit score early so you can improve on a poor credit score. It takes at least one year, and often up to three years to get back to your previous high.
CHECK YOUR CREDIT SCORE REGULARLY
My credit score is consistently being monitored because I’m in the prime of my career and am paranoid about identity theft. Spending several hundred dollars a year for the piece of mind that my financial information is correct and not being tampered with is worth it. If I was retired and have multiple-millions of dollars in the bank, I would care a little less, because I don’t need credit. However, I would still monitor my scores because of identity theft.
Stay vigilant readers and sign-up for your free credit check score with TransUnion. It’s free and could really make a difference to your finances and even your love life. You need to check your score at least once a year so you know how you whether you are safe and whether you need to improve. Don’t be naive to think that the government and businesses you deal with have your best interest at heart. It just takes one bad move to ruin your finances.