Money Monday: Financial Fundamentals

Top view of alphabet letters, pinboards and notebook written wit

At the beginning of each year most people are optimistic and lay out all their plans and goals for the new year. I suppose for most of you the beginning of A.D. 2022 is no different. It is a time for a fresh start and hope springs eternal. But you will never achieve your financial goals unless your basic or core foundational concepts are solid.  Therefore, I thought it useful if we begin our 2022 Money Monday journey for January 2022 with articles on fundamentals.

While this issue is not thought of traditionally as a fundamental, I decided to write on it since it is projected to increase several times in 2022. Today’s non traditional fundamental is rebuilding, building and or maintaining your credit. In discussing credit, by extension I am talking about interest rates which are expected to increase this year.

What Does Not Affect Your Score

If you are going to improve or rebuild your credit score, there are some transactions for which you will not receive credit. Not all car loans will improve your credit score. If you purchase a vehicle from a “ buy-here, pay-here dealership or under “ buy-here, pay-here” financing, your monthly on-time payments may not get reported to the credit bureaus. Auto dealerships sometimes advertise or promote “buy-here, pay-here” loans as “ we finance”, “no credit, no problem” or “no credit check” loans. Here’s the take away: this financing is more expensive and monthly payments are not reported to the credit bureaus.

Insurance bills generally will not help improve your credit score. Yes, paying your bills on time counts for at least 30% of your edit score, but the insurance company will not report your late payment or unpaid balance to the credit bureaus. What happens is that, the insurance company will sell the debt to a collection agency who will pursue the outstanding obligation. While I strongly encourage and advocate for paying insurance bills on time, late payments generally do not impact your credit score. What it means is that if you were ever in a tight spot and had to make a decision between paying your vehicle insurance and your credit card bill, pay your credit card bill first!

Using debit cards, paying cash, prepaid cards or payday loans will not assist you in rebuilding or improving your credit score.

 Time Limits

How long do some negative items remain on your credit report? Negative transactions may remain on your credit report for many years, with the main suspects being bankruptcy, foreclosure, lawsuits and judgments. Bankruptcy may remain on your credit report for ten years; foreclosure seven years, and lawsuits and judgments may remain seven years or longer.

 Credit Score and Interest Rate

Credit scores range from 300 to 850. In a Bank of America example, if you were seeking a mortgage of $300,000.00 and your credit score was between 620 and 639 you would pay $213,245 in interest. On the other hand,  if your credit score was between 760 and 850 over the same mortgage time period and interest rate, you would have paid $119,634 in interest,  a difference of $93,611.00 .  What would you do with an extra almost $100,000? Why is this fundamental credit score issue so important? The Federal Reserve is set to increase interest from 0.3% to 0.9% in 2022. This increase will impact your credit cards, mortgages and vehicle loans. Save thousands of dollars by improving your credit score in 2022.

This is WHAT’S UP!

Let’s talk about The No Surprise Act. This law which took effect on January 1st, 2022 protects patients from having to pay higher medical charges from out of network providers when they receive emergency care or treatment from doctors or hospitals that are not covered in their insurance networks. On average this bill can save you more than $1,200.00 for anesthesiologist services, $2,600 for surgical assistants and  $750.00 for childbirth related care. Since many people do not have an emergency fund, these out of network bills can be a surprise. Now that this law is in effect, you can breathe a bit easier.  And that’s what’s up!

 

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC . Give2Get Rich, LLC 2022. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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