Gospel Today Magazine
July/August 2008

Financially speaking, there are three types of people, The Haves, The Have Not’s, and The Have Not Paid For What They Have!  That last group has a lot of stuff, but they bought it all on credit!

In America, so much of what we buy is financed or bought on credit. Unfortunately, because of the bad U.S. economy, the credit rules have changed.  A year or so ago they were giving money away to anyone who could fog a mirror!  You didn’t need a super high credit score to get a loan for the stuff you wanted.  However, times have changed.  Many lenders are demanding higher credit scores because they’ve been burned by rising delinquency rates.  When lenders start losing money they begin to take less risk and tighten their lending standards.  Whereas just a year or so ago a score of roughly 680 to 720 would qualify you for just about anything, that bar has now been raised to 720 to 750 credit experts say.

That’s one of the reasons why having good credit is essential. Unless you plan on saving for everything you buy (like your grandparents did) you must establish a credit record. Like it or not, credit is a major part of your financial life and a critical key to building wealth, if it is used wisely.  Even if you plan to make all your purchases with cash or with checks, you’ll still need good credit. Insurance companies now check credit records before they agree to cover your car. Many employees check credit references before they hire you to see if you pay your bills on time, and to determine if you will be tempted to pilfer from the company coffers. Landlords want to know if you will be reliable with the rent, so they check your credit report. In other words, you cannot escape this aspect of life in America.

According to Freddie Mac, 27 percent of Whites have bad credit, compared to 34 percent of Hispanics, and 48 percent of Blacks!  That means that almost half of Black folks have credit that’s “tore up from the floor up!”  Some of that has to do with our “lack of knowledge” of the credit scoring system, which I will address momentarily.  However, many of the “bad credit blues” that a lot of minorities experience may have to do with the general economic conditions of their families.  African-American and Hispanic households tend to have higher unemployment rates, less job security, and lower levels of wealth.  For example, in times of financial difficulty, minority households may be less able to get help from parents or other family members and more likely to fall behind on their payment obligations.

The Bible doesn’t directly address credit, but it does speak to it indirectly. Proverbs 22:1 (NAS) says, “A good name is to be more desired than great wealth…” Your credit score is like your name, or financial reputation. I believe God wants us to have a good name because we represent Him.  Therefore, I have recommended five things to do (and not to do) when it comes to your improving your credit score.

What to do:

• Order your credit report and search for errors. You can order your credit report and credit scores from Equifax, Experian, and Trans Union.   You can get free reports from annualcreditreport.com, myfico.com or freecreditreport.com.  Don’t be afraid to dispute any mistakes you see.
• Pay your bills on time. Your payment track record accounts for about 35% of your FICO score.  Therefore, the longer you make timely payments, the better your score will be. If you make late payments your score will suffer.
• Be patient. Negative information like late payments will generally drop off your credit report after seven years.
• Maintain a healthy mix of credit. A blend of revolving credit, such as credit cards and installment loans can help boost your score.  Now I’m not advocating that you go out and get in debt, I’m just saying “the system” likes to see a variety of credit.
• Manage your credit utilization ratio. Thirty percent of your score is determined by how much credit you have available and how much of that credit you’re using. To boost your score, never use more than 20 to 40% of your available credit.

What not to do:

• Don’t’ max out your available credit.  Keep credit card balances low relative to your credit limit.  For example, if you have a $5,000 limit, try to keep your balance less than $2,000.
• Don’t delay when shopping for the best rate on a loan.  Confine loan shopping to a few weeks so that credit inquiries won’t weigh on your score.  Any automobile or mortgage related inquiries that occur within 14 days of each other are fine.  Multiple credit card inquiries are another story. Numerous inquiries can mean a loss of 50 to 100 points on your score.
• Don’t open up a bunch of credit-card accounts you don’t need, thinking the higher level of available credit will boost your score.  Your FICO score will generally drop a few points with each new account.
• Don’t close old credit-card accounts in an attempt to improve your score.  You’ll lower your total available credit, which could damage your score.

These are just a few simple ways to boost your credit score.  I pray that as you are faithful stewards of God’s resources that He will get you out of debt so that credit score issues will never be a problem for you again!