Q: What credit score should I be aiming for? – Melanie (via Twitter)
A: Melanie, there is not really a magical number, but most financial professionals will tell you to aim for at least something in the 720-740 range. This is based on what is called the “FICO” model, where 850 is the maximum possible. FICO – in case you’re curious – comes from the name of the largest company that provides the software used for calculating such scores…the Fair Isaac COrporation.
FICO scores are (somewhat arbitrarily) arranged into five categories, from “poor” for anything under 580, to “fair”, “good”, and then “very good” which takes us to the 740 to 799 group. Anything 800 and above then is “excellent”. But it is that “very good” or higher where you are going to see the real benefits. For starters, getting better terms on personal loans. If you’re borrowing money to start a small business or buy a house or car, the cost of borrowing that money is going to decrease as your credit score increases. You’re also going to be able to get access to credit cards that others may not. But considering how much I dislike credit cards, and the fact that the rate you pay for those credit cards isn’t any lower regardless of your credit score, we’re not going to discuss that there.
Lastly, you’re going to look great when it comes to background checks. For instance, those done by landlords or employers. While your background check does not show your actual credit score, some of the things that may be dragging your score down will appear on a background check as well, which may affect your ability to find gainful employment.
So Melanie, depending on what your score is currently, you may now be wondering how to raise your score. The answer to that varies a bit depending on who is calculating it, but it’s safe to say that your payment history and the amount you owe make up the lion’s share of the influence. So get any past-due bills paid, or at least pay as much as you can as soon as you can. I hope that helps!
Q: I read this morning that we are now in a “bear” market. I’m told that’s bad. What exactly does it mean? – Jessica (via email)
A: Jessica, it is bad, but it’s far from being the end of the world. And as I’ve said numerous times before, it doesn’t mean you’ve lost any money on your investments. As long as you still own the same investments, you’re going to get the benefit of the future recovery.
A bear market is officially entered into at any time a market index or even a specific equity or commodity drops more then 20% over a span of time. Often two months is considered the benchmark for this definition. The Dow Jones – certainly the most well-known market index – dropped into bear territory recently after a close at just over 23,332. Matters weren’t helped when it dropped another 1,600 points the next day.
This might be a valuable time to remind people of something called market volatility. The price of any given investment from gold to pork bellies to Amazon stock changes thousands of times every day. Depending on the volatility index of your particular investment, the change could be fractions of a penny or several dollars. And often, that volatility is created simply by the law of supply and demand. I want something, so I have to pay a bit more than anyone else in order to get it.
Sometimes, an outside influence affects an entire industry. China starts a building boom, so the price of any company involved in the manufacture of steel goes up. And sometimes, an outside factor impacts pretty much everything. In this case, Covid-19 has scared the crap out of everyone and we’re all buying toilet paper to clean it up. Silly me…I assumed we’d be buying soap, but whatever.
My friends who are financial advisors are reporting to me that all of their sophisticated clients are buying INTO this market as opposed to selling. In other words, sophisticated investors are buying value while less sophisticated investors are losing money. The choice is yours.
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— Eric Litwiller has spent the last nine years of his professional career helping people achieve their financial goals through the use of budgets, retirement vehicles, and estate planning options. He is a firm believer in the importance of using Earthly riches to fulfill a mission of Christian stewardship. Eric is not a licensed financial planner.