There is a lot of focus on the lack of emergency savings accounts and the fact that most Americans have failed to accumulate adequate savings. And yet, when asked what the biggest financial concern is; the answer is surprising.
According to the Go Banking Accounts recent study, more than 70% of Americans are actually more concerned with their credit score while only 40% are focused on their savings.
While the focus on improving your credit score is valid, the mere action of paying down debt and building your savings will not only provide that financial cushion but will also improve your credit score.
Carrying a Credit Card Balance Doesn’t Improve Your Score
It is a myth that carrying a credit card balance will improve your score. In the USA Today article by Ben Tobin we learn:
More than 1 in 5 credit-card users, or 43 million Americans, carry a balance – or pay the minimum to credit-card companies, thus always owing them money – to help improve their credit scores, according to a new report from CreditCards.com. But carrying a balance is not one of the factors that go into creating a FICO credit score.
The FICO credit score is calculated based on five areas of your financial habits:
35% Payment history
30% Credit Utilization
15% Length of your credit history
10% Credit mix
10% New Credit
The largest factors are your ability to pay on time, payment history, and the amount of money you owe or the credit utilization. According to an article by Credit Card.com on how the FICO score is calculated we learn:
The first two factors make up nearly two-thirds of your score. So, if you pay your bills on time and don’t carry big balances, you’re two-thirds of the way toward a good credit score. The final credit score pieces can move you from a good score to a great one.
Therefore the smaller amount you carry on your cards the better your score. Not only that, when you pay off your credit cards each month you avoid the costly fees and interest rates charged by most card companies.
Regularly Monitor Your Credit Score
Keep close tabs on your credit score. Periodically check your account using one of the available services like Credit Karma which will not only show your current score but will also provide your credit details and suggestions for improving your credit score.
Review your information to make sure that your open accounts are accurate and that a new account hasn’t been opened without your knowledge. Monitor the balances and the payment history. One great credit score killer is a history of late payments. Those late payments continue to impact your score long after the balance is paid in full. If there is an error in your payment history, contact the credit company to clear up the mistake.
Improving Your Score and Saving for Emergencies are Not Mutually Exclusive
It is fine if you want to focus on improving your credit score, however, that shouldn’t stop you from starting a habit of saving money. We recently published an article offering five ways to save that are painless.
Bottom line, you can make a significant, positive impact on your financial picture if you give it some attention. Whether that means improving your score, paying down debt or start a savings plan, all of these actions will ultimately pay off.
One Financial Warning from the People Who Deal with Bankruptcy Everyday
The only thing that will keep you from a debt-free existence is pretending there isn’t a problem. Avoiding the facts is never a great financial strategy. If you need an impartial, experienced third-party to help get you on the right path – give us a call. We can help.
Southern Illinois Bankruptcy Attorney law firm Bankruptcy Advocates is located in Carbondale and serves a wide geographic community including Carbondale, Murphysboro, Marion, West Frankfort, Johnston City, Benton, Herrin, DuQuoin, and Pickneyville. We are a debt relief agency. Our southern Illinois bankruptcy attorneys help people file for relief under the Bankruptcy Code. The first consultation is always free. Give us a call at 618-549-9800 or email us at [email protected] to speak about your case or legal matter. Convenient appointment times are available.