Over the next couple weeks, I really want to help people demystify the minutia that surrounds credit scores and how to improve them. This week’s article will be all about what a credit score is, what affects it, and how to build it if you don’t have any or need to rebuild what you do have. Next week’s article will focus more on a step-by-step action plan to improving your score.
I’m going to apologize up front if some of this information seems elementary. But I didn’t want to leave anybody out, irrespective of their knowledge base. My friends and I joke a lot about how we would go into certain college classes and the professor would be discussing concepts as though they were common knowledge and it wasn’t the first week of class. Inevitably a student would raise their hand and say, “I’m sorry sir, I have no idea what it is you are talking about.” The last thing I want to be is the professor who assumes that everyone in the class is already on the same page. So to avoid that catastrophe, let’s start with page 1.
What is a Credit Score?
The easiest way for me to break down anything is to analogize it to something that is a little less conceptual and little more commonplace. Just for kicks, let’s pretend that applying for a loan was the same thing as applying for college. Anytime you apply for college, you have to first take a standardized test (the SAT or ACT), and you have to submit a high school transcript along with your application. Why do you have to do this? Because the college wants to get a feel for your knowledge base against objective, nationwide standards. And it also wants to get a more individualized feel for your educational prowess over the course of the last four years. Both of which are then used to determine, quickly, how likely you are to succeed if admitted to attend their institution.
Well a lender, essentially wants to get a feel for the same things when applying for a loan. It’s the same script, just a different cast. First, they want a quick, objective measurement against national standards, which your credit score allows for. And if you pass muster with your score, the lender will then take a more in depth look at your financial prowess (i.e., your credit report) over the past however many years. Then the lender will use both factors to make a final determination on whether or not you are likely to succeed in repaying the loan. So from here on out, think of your credit score as your standardized test, and your credit report as your financial transcript.
A credit score is what helps lenders evaluate your creditworthiness based on a snapshot of your credit report at the time of your application. Essentially, the scoring system (e.g., FICO) calculates the score using only information found in your consumer credit report that is maintained by three reporting agencies (TransUnion, Equifax, and Experian).
Goal setting is, and probably forever will be, one of the most important aspects of life. I mean heck, it’s something almost everybody does at the beginning of every new year. Something about the coming of a new year that makes you re-evaluate your station in life and how you can improve upon the year you just left behind. But have you ever noticed that despite how much everyone talks about goal setting, very few break down how to do it right? I feel like we’re constantly beaten over the head with, okay, go set some goals, commit them to paper, then go out and be successful. Next thing you know you have this scatter plot of ideas, but no line of correlation, and you ultimately fail at whatever it is you were trying to do.
Well let me be the first to tell you that your failure was in no way due to your lack of effort (this is of course assuming you put in some effort lol). Instead, it has everything to do with how your goals were structured. In this article, I want to demystify everything you’ve learned about goal setting to this point. My hope is that by taking the time to connect the dots, I can relay to you how having the right goals, set the proper way, will inevitably and consistently lead to success.
1. Having the Proper Mindset
I made this the first step because it is undoubtedly thee most important. Before you can achieve anything (and I do mean anything), you have to believe it is achievable in your mind first. If you’re anything like me, you would think to yourself, well I’m not so sure I can do this, but I’ll give it a shot and I may surprise myself. It wasn’t until my early 20s, that I realized how completely off this mode of thinking was. It was when I was taking a Body Pump class that was led by a former Pittsburgh Steeler, in which he said, “If you think you can’t before you even try, you’ve already lost the battle.” Ten years later, and his words are still crystal clear in my mind. So clear, in fact, that I thought it pertinent they be shared with you.
I know the title sounds a little harsh. But before you prejudge, hear me out. This isn’t a cynical, negatively charged article. Instead, it’s a healthy dose of brutal honesty. Sometimes you have to have the tough conversations to navigate through the vicissitudes of life. Below you’ll find 10 pitfalls that if not avoided can perpetuate the cycle of debt we’ve become all too accustomed to. But I want to see you break that chain and free yourself from those familiar shackles. And if I do my job right, by article’s end you’ll understand exactly where I’m coming from. Or you may do me one better by committing these certain pitfalls to memory, avoiding them altogether, and making a liar out of me. Let’s get started…
1. Misdiagnosing the problem.
None are more dangerous than this. I’d say 85-90% of the people who have money woes think it’s because they don’t make enough money. But that couldn’t be further from the truth. The lack of funds may be a symptom, but it isn’t the source of your problems. Truth is, the source of your problems is you. I hate to say it, but somebody had to. Wonder how I know? Because the source of my problems was me. I had to have the same brutally honest conversation with myself (in a non-crazy way of course lol). But seriously, it came to a point where I had to realize that money is to be respected and valued. And to make more money before I was ready for it would have done nothing but make me broke on another level. Ever hear the old adage, “if you make more money, you spend more money?” Well that applies here. Until you learn the foundational principles of money, you are doomed to live life just making it, no matter how big your check is. So before you go blaming your less than satisfactory income, make sure you chiggity check yourself before you wreck yourself (had to get in at least one cornball line this article – it’s the geek in me).
Hello Freedom Fighters!
It’s been quite some time since I’ve posted, and I apologize for that. No excuses, just my lack of consistency and stick-to-it-iveness (yes that’s made up lol). But I’m looking to change that. My newest goal is 52 posts in 52 weeks, starting today. So keep me accountable. I don’t care if my inbox is full to overflowing. Maybe that will keep me on track and accountable to you.
Today is a different kind of post. We’re going to get away from the financial side of things (just this once), and discuss something of a relational matter. My long term vision for Free in You is that my readers would be free in all areas of their lives: financially, spiritually, socially (or relationally), physically, and mentally. My first focus, of course, will be financial freedom. But from time to time, I may delve into those other areas. Mostly because I believe that one should be balanced in all areas of life in order to truly enjoy it. And as you begin to experience freedom in all of these areas, you will more fully understand what I mean.
Transitioning into this week’s post, it’s all about relationships (hence the title lol). After a conversation with a close friend, I was inspired to make a post on my Facebook page. And following a recommendation by one of my high school buddies, I decided to post it here. I hope you enjoy it! And may it add unending value to your life…
I’d like to start this with a mini-disclaimer… I am not a relationship guru by any means. Everything I’m about to say is a direct result of past mistakes, personal experiences, experiences of those closest to me, things I have read, and things I have studied. First, a relationship (be it familial, a friendship, romantic, or work-related) is a relationship. At its base, the dynamics do not change because the title does (only the expectations). Regardless of the classification, a relationship will always involve an interaction/connection/companionship/involvement between two people. The depth of those things may change, depending on the nature of the relationship. But the foundation does not. Which is why you look for the same things in every single relationship you have (whether you know it or not): Trust, love, companionship, acceptance, compatibility (or chemistry), similar core values/morals/mindsets, and a mutual exchange of happiness. If someone doesn’t give you these things (again be it familial, romantic, or friendly), you will find the level of intimacy in your relationship changing. And by intimacy I mean a deep knowing, a closeness, not sexual (sex is nowhere in the definition of intimacy). Sex is merely considered to be an intimate act because of the level of “closeness” required. But I digress.
When I was younger, I played sports competitively at the collegiate level. As one of few girls, at the time, who picked up a basketball and knew what to do with it, I felt like I was in a league of my own. All while growing up, I was told that I was “heads and shoulders above other players.” Which, as it turns out, was a good and a bad thing. It was a good thing, because it positively reinforced my mental game as an athlete. It was a bad thing because it handicapped my progress. Sounds confusing that positive reinforcement can at the same time handicap you. But I promise you, it’s true. This single phrase became a two-edged sword that kept me from reaching my fullest potential. Mostly because I chose to receive those words as an absolute, infallible truth. Not knowing this “infallibility” was the source of my problems.
As a kid I was absolutely obsessed with being the best. Most likely because I’d see greats like Michael Jordan and Muhammad Ali and I’d admire them. There was something in their “greatness” that I desired to have. I would constantly watch documentaries and read articles on how people achieved greatness. I figured the best way to be like them was to study and mimic them. So that’s exactly what I did. I’d practice religiously. I’d carry a basketball wherever I went. I constantly studied the game, be it watching sports or listening to talks given by some of the nation’s best coaches (Pat Summit and Geno Auriemma to name a few).
And true to form, all of the hard work paid off. My game excelled. I could do things on the court that no girl had any business doing. Which only further confirmed that I was “heads and shoulders above any other player.” Now before you look at me sideways, I’m coming to a point. I promise. This isn’t meant to brag, I just want to express to you where my stinking-thinking mindset was at that time. So please bear with me.
So here you have your typical, American teenage girl (with the mouth and attitude to boot), who thinks she’s the greatest thing since sliced bread. I mean my head was so big, it’s amazing I could fit through a standard door or experience the effects of gravity. You also have family and friends who are constantly reinforcing the thought that she’s the greatest thing since sliced bread. And now you have college letters and applications pouring into her mailbox that only further perpetuate the problem.
Now that the scene is set, here comes the question of the hour. How do you think it was to coach a player like myself? An arrogant, self-aggrandizing teenager who you couldn’t tell a thing. I’ll tell you how it was. It was absolutely horrible. I wasn’t teachable, let alone coachable. I thought I knew it all. And anybody who threatened or came into disagreement with that thought went toe-to-toe with my wrath. It wasn’t until my Junior year of college that things began to change for me.
“The number one problem in America is financial stress,” were the words my coworker announced to us last week. I knew debt was a pretty significant issue from personal experience. But I had no idea it was the number one issue. I guess sometimes you think when you’re going through something that you’re the only one going through it. But if you open your eyes, you’d be surprised how many people share your same stresses and daily issues. And that’s why I’m writing this article.
If you’ve been visiting my blog for a while, or if you’ve read my book, you already know my background story. So I won’t bore you with redundancy by recounting it here. But if you’re new to my blog, or this is one of the first articles you’ve come across, suffice it to say that though I had a corporate job, I was still “broke” and living check-to-check. Not to mention I had almost $20,000 in credit card debt and 6 figure student loan debt. Couple all of that with living above my means, it’s safe to say I was exorbitantly stressed.
But one day, after multiple efforts to grow my income failed to bear fruit, I decided to make a change that didn’t require anybody else’s permission or handouts. The answer to my debt problems lied entirely with me. And though it took some time, I finally figured out just how I was going to fix it once and for all.
The process for paying off debt is actually relatively simple. But that doesn’t necessarily mean it’s easy. What do I mean by that? Well it’s like I tell my friends, simplicity speaks to the process, while ease speaks to the execution of that process. For example, it’s simple to lose weight. You just have to eat right and exercise regularly. But actually carrying out the whole “eat right and exercise regularly” regiment is far from easy, because it requires discipline. Catch my drift?
Just a mini-disclaimer for the day. So you’ll want to keep this in mind as we walk through this debt relief process. It’s very important that you remember, the battle is more in your mind than your pocketbook. And if you can win the battle of the mind, paying off the debt is pretty much already done. The rest is just confirmation. That’ll make more sense later, I promise.
So let’s get into this. How do you pay off debt? And how do you do it as quick as possible? Paying off debt, as I said, is simple. It’s really just four steps. First, you have to know your state of affairs. This means you need to know how much money is coming in, and how much money is going out, on a month-to-month basis. I wrote a pretty extensive article on this subject. Click here to check it out.
Second, you have to give yourself a raise. Seems impossible, I know. But I’ve done it, and even helped a few friends duplicate this process for themselves. This really just involves assessing your monthly expenses, and finding creative ways to reduce these expenses. I’ve also written an article showing exactly how you can give yourself a raise without changing jobs or asking your employer for more money. Click here to check that out.
Third, you have to develop a plan. If you fail to plan, you plan to fail. Think of it this way, you wouldn’t set out for a destination that you’ve never been to without a map or GPS right? So why endeavor to head for debt freedom (a destination that’s foreign to most of us) without a roadmap? If you want to guarantee failure, start your debt relief journey without a plan. And I’m not saying that to be negative or discouraging. I’m saying that to protect you from what will inevitably follow if you fail to plan. And in case you’re wondering what that plan should be, no worries, I’ve already created the roadmap for you. You just have to follow it. And I promise we’ll get into that shortly. But first we have one more step to outline. Drum roll please…
The Money Constitution
Last week, I promised to work on my brevity. So this week is my first crack at it. Wish me luck!
Today, I wanted to share with you 20 laws of money that I use, on an ongoing basis, to keep the constituents of my wallet safe. This list was developed, over time, as I recovered from (and paid for) years of poor financial decisions. I now use these laws to protect myself from myself. The funny thing is, these laws (better referred to as boundaries) actually turned out to be one of my better lines of defense in the war against “brokeness” (yes I just made that word up… Webster’s not the only guy who can develop a dictionary lol).
Again, I’ll try to be brief as I run through each law. But I also don’t want to short you on a full understanding of why each law is important. So if I notice myself getting a bit out of hand, I’ll try to reign it in without sacrificing the quality of the content. Ready? Let’s get started…
I shall never make a large purchase (over $300) until I’ve slept on it for at least 24 hours.
The importance of this law is pretty self-evident. Unless you’re ballin’ out of control, $300+ is nothing to sneeze at. And the last thing you want to do is make an emotional or impulse buying decision, then regret that decision less than one day later. I don’t know about you, but in my experience, buyer’s remorse hasn’t been the best of company. So in the spirit of keeping better company, I highly recommend sleeping on buying anything that costs $300 or more. Why 24 hours? Because it gives emotions and illogical thinking a chance to subside, and rational thinking a chance to rise up. If after 24 hours the decision still makes sense, go for it!
I shall never buy anything on credit that I cannot pay off in 30 days or less.
The reason I never buy anything on credit that I can’t pay off in 30 days is two-fold. First, if it goes beyond 30 days I have to pay interest. Interest payments are never a good look. And after paying off $20,000 in credit card debt, if I never see another interest payment in my life, it’ll be too soon. Second, if I can’t pay it off in 30 days, let’s just be real about it… I can’t afford it. I’m past the point where I want to live a borrowed life. One of the biggest lessons I’ve learned over the past few years is you should OWN your life. No more spending tomorrow’s paycheck, today.
I shall never exceed my budget.
The reason for this law can be summed up in one word: DISCIPLINE. If you really want to make a difference in any area of your life, you have to exercise discipline. Plain and simple. And budgeting is one area where I do just that. By never exceeding my budget, I set boundaries for myself. And those boundaries are what keep my money “right.”
I shall always know the state of my financial affairs.
Knowledge is power. And, no matter what they say, ignorance is not bliss. You can’t fix a problem, without first diagnosing it. That’s why always knowing the state of your financial affairs is so important. It not only helps to indicate where you are, but it also aids in developing a plan to get you where you want to be.
I shall always have peace about my buying decisions. If I find myself going back and forth about purchasing an item, then I don’t need it.
Remember how I said earlier that buyer’s remorse is not the best of company? Well that’s what this law guards against… less than savory company. Why do you think you have buyer’s remorse to begin with? Now be honest, what do you think the real reason is? Tell you what… I’ll tell you mine, if you tell me yours. Actually, I’ll tell you anyway. The real reason I have buyer’s remorse is because I couldn’t truly afford what I bought to begin with. If I could, I wouldn’t have given it a second thought. Think about it… when you spend $5 on a meal, do you regret it the next day saying, “gee I wish I wouldn’t have spent that $5 on food yesterday.” No, you probably don’t. Why? Because it didn’t put a dent in your wallet. Not to mention you need food to survive. But if you spend $500 on a TV when your car needed new tires and brakes, bet you regret that decision before you even leave the lot. Picking up what I’m putting down?
Now let me tell you about peace. When you have peace about a buying decision, it is for one reason, and for one reason only… you can afford what you just bought. Trust me, you want peace when you walk away from a buying decision, because it’s confirmation that you made a good choice. And when you get that confirmation, there’s no better feeling in the world (well there might be, but you catch my drift).
I shall always have a financial plan. Though I will remain flexible, as plans are ever-changing.
I won’t lie, I’m a planner… it’s kind of my thing. But that doesn’t take away from the effectiveness of this strategy. You should always have a plan. You wouldn’t drive to a new destination without a map or a GPS. So why short your financial future by not laying out a roadmap to get there? Planning is probably the single best thing you can do for yourself. As long as you realize that even the best laid plans change. But that’s okay. As you grow and circumstances change, your plan should grow and change right along with you.
I shall budget year round for all major purchases. This includes budgeting for vacations, Christmas gifts, and emergencies.