Get the Score

The writers at CleggThis would like to thank Simon Cowell for taking up so much time writing American Idol reviews that they have completely disowned their loyal readers. They would also like to welcome back the greatest hard hitting, relevant insight into social commentary on the internet, CleggThis.

In welcoming back all you lovely people, the staff here has decided to thank you by offering some great life advice, and something that should be on the forefront of everyone's mind, finance. About 2 years ago the staff here was in some financial crisis that incorporated many phone calls from lenders asking for their cash money. It was at this point the staff decided to stick it back to the man and get it under control. Over the past 2 years the financial situation has gone from desperate to awesome.

There are many of you out there that are between the ages of 21 and 35, jump starting your careers and trying to make something of yourself, while at the same time trying to live life to the fullest and do as many fun things before you settle down with a couple of offspring and a house. In order to do this, you got to have a good score, and I am not talking about having a great bowling average, I am talking about a credit score. Your ultimate goal is to have a good Fair Isaac Corporation score, or FICO score.

Once you have a good FICO Score, life becomes easier. First things first, you need top find out what your score is. It can range anywhere from 350 - 850. The higher your score, the better your chances of getting low interest loans (credit cards, cars, homes) This lower your score, the more likely you will pay high interest rates or worse, be denied any sort of lending.

You are entitled to one free annual credit report a year for free from each of the 3 credit bureaus. The 3 are TransUnion, Equifax and Experian. You can go to Annual Credit Report to obtain these. This will not get you a FICO score, but it will give you an in depth history of all the credit you have had. MAKE SURE THERE IS NO FALSE INFORMATION IN THESE. You would be surprised how often it is. Check these once a year. By paying one of these agencies a fee between 15 and 30$ you can get a copy of your credit score. Do this once a year as well. DON'T try and get your score elsewhere, it won't be accurate.

Ideally, you want your score about 720. Anything under that you want to do your part to raise that up. Here are some of the criteria they use for calculating your score, in order of importance.

1. Pay on time. If you pay all your bills on time your credit will go up. And when going through your bills pay your credit bills first. These include credit cards, student loans, car loans, anything where you have been given money and are expected to pay it back. These DO NOT include cell phone, electric bill, cable bill. If you don't pay on time, your score will go down. Be careful of credit cards too, if you are late on one card, they can raise you interest rate on other cards.

2. Debt to credit ratio. This is the difference between how much has been lent to you in relation to how much you owe. Ideally, you want that ratio below 50%. Example: You have 2 credit cards, 1 with a $1000 line and 1 with a $2000 line. You have a total of $3000 of credit. On the first card you owe $700 and the second card you owe $1200, so in total you owe $1900 in debt. Your debt to credit ratio is 63%, which the credit bureaus don't like. You can do one of 2 things, pay down your debt so you are under 50%, or call your credit card companies and have your credit lines raised. Both get the same outcome, and both help your credit score.

3. Credit Inquires. Every time you apply for a credit card, car loan, student loan or mortgage, someone dips into your credit report to see if you are worthy. Each time they do this, it hurts your credit score. Obviously how do you get credit without getting loans. Just try to keep these to a minimum. Once in a while is not bad, but if you are applying for 10 credit cards over the course of 2 months, you become a red flag.

4. Credit History. You need to have a credit history. The more history you have, the better, and the better history you have, the better. People are very fast to cancel a credit card after they have paid it off. BAD IDEA! Keep the account open, but take a pair of scissors to the card. This works on 2 levels, one, you have a history with a lender in good status AND you will help your debt to credit ratio. It is also not a bad idea to get a credit card to then only cut up the card and never use it. Although if you do this, I suggest buying a couple small things and paying them off before cutting up the card. Its give you a pay back history.

Here is some good general advice:

Good credit versus bad credit: You need to keep in mind the difference beween good credit and bad credit. It is pretty easy when you think about it. Good credit is student loans and mortgages. Any loan that is either an investment in yourself (student) or a financial investment (house). Bad credit are loans where you see no return, these are credit cards and car loans. Cars depreciate in value and credit card debt is about the worst debt you can be in.

Credit card interest rates: You are going to pay interest rates on credit cards. The only way you can get by it is to transfer to a 0% offer, but those only last about a year and then the rate will jump to at least 15%. If you do this, make sure get out of it before the offer expires or haggle with the company to bring the rate down.

Credit card payments: Most likely you can't pay your credit card in full each month. Most likely you have 2 cards. Pay AS MUCH AS YOU CAN ON THE CARD WITH THE HIGHEST INTEREST RATE FIRST!!! Pay only the minimum on the other cards. Do this until the highest rate card is payed off and then move onto the next highest rate. NOTE: Don't pay so much to the highest interest rate that you can't make the minimum payment on your other loans. ALWAYS PAY ON TIME!

Online Bill Pay: Use it. Waiting for a check to get through the mail may make you late for a payment. Be careful of going through your bank for online bill pay. Most banks cut a physical check and then mail it out, so make sure you put the payment in with enough time to get through the mail. I recommend setting up an online account with the actual credit company.

Free Money: Get yourself into the 401k program. Most companies will match a percentage of you contributions. THIS IS FREE MONEY! Let me say this again. THIS IS FREE MONEY! This is also money that will compound interest for many years to come. If you are not in the 401k program right now, do it today. If you are into passing up free money, well, then you are beyond helping. If you are one to say "But Barry, I can't afford to contribute money to the 401k" then I say bullcrap. The difference between investing now and in 4 years could potentially be in the hundreds of thousands in 40 years. Yes, the difference between starting to invest at age 23 and age 33 could potentially be between $100,000 and $500,000. If you are worried about the amount, make sure you only contribute enough to get the maximum company match. THIS IS FREE MONEY! (I can't say that enough) My company does 50% of the first 4% you put in. So if you are a Cramer employee, you should at least contribute 4% of your salary.

Don't Lease a Car: Cars are the worst investment out there. Unless you have some sort of classic car, your car will not make you any money. The second it drives out the lot it depreciates in value. The worst thing you can do is lease a car. You may pay less a month, but you will not own the car at the end, which is the only saving grace to car ownership. Also, if you are frugal enough to make it till the end of your car payment, don't then go out an buy a new car. Most likely you have made payments for 4-6 years, give yourself a gift of a couple of years without a car payment.

I hope this helps. You are probably wondering who that ridiculous looking women is at the top of the page. That is Suze Orman, and while she looks ridiculous, she has some of the best financial advice out there. I recommend reading her book "Young, Fabulous and Broke." Yes, it sounds awful and cheesy and stupid. But if you are in any sort of bad financial state, the cost of not reading will only make you awful, cheesy and stupid.