What You Should Know About Credit Scores

Credit scores are a measure of one’s ability to manage debt. The dominant credit scoring system which is used by most lenders was created by Fair Isaac. This system provides a measure of an individual’s creditworthiness and is commonly known as a FICO Score.

A credit score impacts many things. It determines whether or not you can obtain a loan. If you qualify for a loan, the credit score dictates the interest rate charged.

Credit scores also impact insurability. When you obtain auto, renters or homeowners insurance, the credit score directly impacts the insurance cost. The lower your credit score, the higher the insurance premium will cost. I have seen insurance premiums double because of poor credit.

Credit scores also impact the ability to obtain a cell phone contract or an apartment lease. It can affect utility connections. Utility providers usually require much larger deposits from people who have low credit scores. If you have an excellent credit score, a deposit might be waived entirely.   Credit scores can even impact your ability to obtain a job. Your credit score will have an impact on your life.

Many people know their exact credit score. If it is great, they wear it as a badge of honor of their financial prowess. “My credit score is 814,” they will say quite proudly.

Others who have a more colorful experience with credit will wear it as a badge of dishonor. “My credit score is in the toilet,” they say with a glum look.

The fact is that credit scores are only a measure of how well a person can manage debt and contractual financial agreements.

Credit scores are calculated using these data points:

1. Type of credit issued [Revolving debt (credit card) or Installment debt (anything with payments and a pay-off – car loan, boat loan, student loan, etc.]

2. Age of the credit relationship

3. Amount of credit one can obtain (total of all credit limits)

4. Amount of credit one has consumed (percentage of total credit limit)

5. Payment timeliness

6. Requests for credit (“hard pulls” of credit)

7. Outstanding judgments

Look at the list again. Does it include any relationship to how much money one might have in a savings account? Or any connection to a person’s net worth?

Here’s the fact: You could be a millionaire and have a terrible credit score.

How? By having zero credit relationships. While a great credit score is more desirable than a terrible credit score, it is not the best indicator of financial success. Choose instead to make financial decisions about what best increases financial margin and net worth.

How To Reflect On Your Financial Wins

It's easy to focus solely on the end goal and overlook the milestones achieved along the way - especially with our finances. Yet, taking the time to reflect on financial wins, both big and small, can be a powerful tool in maintaining motivation and steering your financial journey toward success.

A Reminder

Reflecting on financial wins is not just about acknowledging successes—it's about recognizing the significance and impact of each milestone achieved. It involves celebrating progress! These moments of reflection serve as reminders of your capability and determination to overcome financial challenges.

Benefits of Reflecting on Financial Wins

The act of reflecting on financial wins extends beyond a mere pat on the back. It cultivates gratitude, fostering a positive mindset that fuels further progress. Each acknowledgment of success boosts confidence, reinforcing the discipline needed to stay on track toward achieving other financial goals.

Strategies for Effective Reflection

Consider regularly reviewing your financial progress. Document and celebrate each achievement, whether it's paying off a debt, reaching a savings goal, or sticking to a budget consistently. Take the time to evaluate lessons learned from challenges faced, and use what you’ve learned to accomplish your next goal!

Celebrating Small and Big Wins Alike

Often, we focus primarily on significant milestones, but acknowledging the smaller victories is equally important. Embrace the value of incremental progress, as these small wins contribute significantly to the overall journey toward living your fully funded life.

Reflecting on your financial wins isn't self-indulgence—it's a necessary practice in your financial journey. By taking the time to acknowledge successes and learning from setbacks, you pave the way for building continuous financial habits and stability!

So, as 2023 comes to a close, take time to reflect on your financial wins, celebrate your progress, and use these reflections as fuel for the road ahead.

5 Reasons To Celebrate Financial Progress

Financial progress is a testament to resilience, determination, and strategic planning. The transition from struggling to financial stability marks a significant accomplishment worth recognizing and celebrating.

5 Reasons To Celebrate Financial Progress:

Motivation and Encouragement

Celebrating financial progress serves as a powerful motivator. Acknowledging and celebrating even small milestones reinforces the belief that your efforts are paying off. It encourages continued determination to accomplish more financial goals.

Financial milestones, such as paying off a credit card or reaching a savings target, become tangible evidence of progress. This positive reinforcement allows you to stay focused and committed to the journey toward your fully funded life!

Reinforce Positive Habits

Recognizing and celebrating financial progress reinforces positive habits. Whether it's budgeting diligently, investing regularly, or setting aside savings each month, celebrating achievements reinforces these behaviors as effective and rewarding.

By acknowledging the success achieved through these habits, you become more likely to continue implementing them.

Cultivate Gratitude and Mindfulness

Celebrating financial progress fosters gratitude and mindfulness. It prompts reflection on the journey from financial challenges to achievements, encouraging you to appreciate your efforts and sacrifices made along the way.

Gratitude also promotes better financial decision-making and a deeper appreciation for the resources you have. This mindfulness can help you stay focused on your financial goals while appreciating the progress you’ve made so far.

Strengthen Financial Confidence

Each financial accomplishment reinforces the belief in your ability to navigate financial challenges effectively. This increased confidence leads to better financial decision-making and a willingness to take calculated risks.

Build A Supportive Community

As you achieve your plans, hopes, and dreams - share the successes! Whether big or small, your accomplishments can inspire and motivate others on their financial journey! Think of a few friends in your life, as you celebrate together, you can form financial accountability and provide encouragement during both the highs and lows of working towards your fully funded life.

Celebrating financial progress goes beyond merely acknowledging achievements; it plays a pivotal role in reinforcing positive behaviors, fostering gratitude, building a supportive community, and so much more. Embrace your financial wins this season!

How Do I Create Good Financial Habits

Our financial habits are the guiding point for our financial journey. Just like a ship needs a sturdy compass to navigate through rough waters, good financial habits provide you with direction, control, and a sense of purpose. Good habits allow you to make informed decisions, adapt to changing circumstances, and achieve your dreams. 

Start with these steps and begin creating good financial habits:

Learn & Educate: 

Knowledge is a powerful tool for financial growth. Invest time in reading financial literature and resources that enhance your understanding of budgeting, saving, investing, and other areas of personal finance.

Define Your Goals:

Set specific, and timely financial goals. These give your financial habits a purpose and a roadmap to follow. Identify short-term and long-term aspirations, such as creating an emergency fund, paying off credit card debt, or saving for a dream vacation. Linking your habits to these goals will keep you motivated and on track!

Create A Budget: 

Build your realistic budget. Track your income and expenses diligently to understand where your money is going. Keep track of every dollar! Allocate funds for essentials, savings, and discretionary spending. Stay disciplined by sticking to your budget and making adjustments when necessary.

If you need help building out your budget, use these resources: 

Automate Where You Can: 

Take advantage of automation - it can be a built-in habit! Struggling to save each month? Set up automatic transfers to your savings accounts, ensuring that a portion of your income goes directly towards your financial goals. 

Creating good financial habits requires dedication and patience. You have to decide to decide - and start today! By practicing these habits consistently, you can shape your financial future and work towards achieving your goals. Your future self will thank you for the positive changes you make today.