...And people keep ignoring THIS too often
People love to pick sexy investments, especially today, and use fancy terms like “EBITDA” or “P/E ratio”.
But they often ignore something that is so simple, so basic, that it just doesn’t seem important: Their credit.
Ironically, credit is one of the most essential components in playing offense, but because it’s hard to wrap our minds around it, we often overlook it entirely.
It’s time to wake up.
Pay attention.
I’m going to show you why establishing credit is the first step in building your personal finance infrastructure.?
Think about it: Our largest purchases are almost always made on credit, and people with good credit save tens of thousands of dollars on these purchases.?Credit has a far greater impact on your finances than saving a few dollars a day on coffee.
Or not ordering Cokes.
There are two main components to your credit (also known as your credit history): Your credit report and your credit score.
I know, boring.
But these two terms can actually save you tens of thousands of dollars over your lifetime, so listen up.
This is worth paying attention to.
Your credit report.?This gives potential lenders basic information about you, your accounts, and your payment history. It tracks all credit-related history (e.g., credit cards and loans), although recent activities are given higher weight.
Your credit score.?This is a single, easy-to-read number between 300 and 850 that represents your credit risk to lenders.
The lenders take this number and, with a few other pieces of information, such as your salary and age, decide if they’ll lend you money for credit like a credit card, mortgage, or car loan.
They’ll charge you more or less in interest for the loan depending on your score, which signifies how risky you are.
Look: it’s ridiculously easy to check your credit score and credit report — and you should do it right now.
Once a year, by law, you’re allowed to obtain your credit report for free at?annualcreditreport.com
It includes basic information about all your accounts and payment history.
You can also get your free credit score at?creditkarma.com, or if you prefer to get your official credit score and pay a small fee, you can use?myfico.com, which is slightly more accurate.
Why are your credit score and credit report so important?
Because a good credit score can save you hundreds of thousands of dollars in interest charges.?
How??
Well, if you have good credit, it makes you less risky to lenders, meaning they can offer you a better interest rate on loans.
领英推荐
Maybe you don’t need a loan today, but in three or four years, you might start thinking about a car or a house. So, please, don’t scoff or dismiss what you just read.?
This is too important to ignore.
What your credit scores based on:
What your credit report includes:
If you doubt that a loan’s interest rate really makes that much of a difference, I’ll show you real numbers in a second.
While other people spend hours and hours driving across town to price shop strawberries, or buying generic bread, or beat themselves up over buying a coffee, they’re failing to see the bigger picture.
It’s fine to keep a close eye on your expenses, but I would urge you to refocus your time and energy towards the things that really matter, the wins that are really going to move the needle, such as a good credit score.
Unfortunately, there’s no way to hack this game.
Otherwise, I’d tell you.
Let’s look at the differences in what you’d pay for a 30-year mortgage based on your credit score.
Credit comes in many forms (car loans, mortgages, student loans, and so on), but we’re going to start with credit cards because almost everybody has one, and most importantly, they’re the fastest and most concrete way to improve your credit.
The good news is that it’s incredibly easy to tweak and adjust by learning a little bit about how credit cards work.
Tomorrow we'll dive into my non-negotiable rules for getting the right credit card(s), and then I'll show you how to beat the credit card companies at their own game.
But for now, let's take action on some of this information.
ACTION ITEMS
STEP 1: Get Your Credit Score & Credit Report (1 hour)
Check them to make sure there are no errors and to get familiar with your credit.