By Sam McIntosh
A lot of little things add up to big things. And when it comes to financial education, one must take care of little things. Otherwise, what consumers face will be out-of-control spending and growing personal debt.
Dr. Kimberlee Davis, an assistant professor in the Family and Consumer Sciences Department at Texas State University, talked to San Marcos business leaders and students Tuesday about credit, budgeting and mental accounting.
She primarily focused her presentation on the function of credit scores and credit reports. She also discussed credit cards versus debit cards, identity theft and other issues that are musts in boosting financial literacy. A credit score is one of those little statistics that must be monitored over the long-term. Even the slightest event can affect one’s credit.
“It’s the little things that prevent us from making progress,” Dr. Davis said during a two-hour workshop organized by the San Marcos Chamber of Commerce. Keeping one’s credit in mind can be vital when planning to make large purchases or borrowing money. Mistakes can be made and neglecting to monitor your credit will result in disappointing losses.
“If there is a mistake with poor credit scores, it will be addressed in ‘x’ number of hours and dealt with within 60 days,” Davis said. “If you found your dream house and there was a mistake with your credit, by the time it was dealt with, you just lost your dream house.”
Personal finance can be like walking through a minefield. Financial responsibility is a habit that must be practiced over a lifetime. Having a positive record of paying bills is one small way to establish the reputation for earning credit. Dr. Davis said the psychology of spending is a big part of being a disciplined consumer. The public must guard against spending money that they just don’t have, she said. Responsible money management will lead to a positive credit score.
The leading credit score in the industry is FICO and figures a score ranging from 300 to 850. Credit scores also have an effect on the amount of insurance premiums for a car or a home. A higher credit score, something approaching 700, may mean receiving a lower mortgage rate, which will mean a savings of tens- or hundreds of thousands of dollars over the life of a loan.
Credit reports, which detail your financial history, lead to credit scores. The credit reports can have a cost, even though they don’t have to. Consumers are entitled to one free credit report per year, Dr. Davis said, but not all free services are actually free. “Freecreditreport.com isn’t really free,” Dr. Davis said. “After your free trial expires, they start charging $14.95 a month. You get one free credit report a year from Equifax, Experian and TransUnion LLC.”
Dr. Davis emphasized the idea of understanding and monitoring ones credit. She was specific in saying that even the slightest thing can affect credit scores.
“It’s the little things that prevent us from making progress,” Davis said. “I didn’t realize how important this was until I became a financial planner.”
If you find yourself in the hole with credit, it is often necessary to seek professional help. If it is a persistent and serious issue, it could cause further harm if dealt with improperly.
“Don’t do it yourself,” Davis said. “You wouldn’t give your dog surgery, you would take it to the vet; the same applies here.”
Although there are plenty of tips and facts associated with financial literacy, Dr. Davis acknowledged there decisions about personal finance follow one throughout life. The road, like life itself, is complicated. Our spending habits are a science, she said.
“Remember, credit is a tool” for financial success, she said
