When I was in my early twenties I worked for a very large bank managing personal credit cards all around the world. Majorly in customer service but I handled fees, applications, correspondence, collections, and fraud while I was there. By two years in I was certain “credit” was a dirty word, that poor people with poor parents were behind the eight ball, and that I didn’t need it. I had opened a small secured account with Providian Bank, paid it on time, above the minimum payment but I just had little to no credit and even less knowledge.
Further preachings from Dave Ramsey via my dear Uncle Scott about the evils of Credit and how it is far better to pay for everything in cash and not be beholden to a FICO score had me pretty much credit free by the time I started nursing school in my late twenties. That’s where things started shifting in my life.
Working full time with that bank became infeasible as my nursing classes became more demanding. Clinicals became full twelve hour shifts two days a week and care plans on a single patient required tube feeds of alternating espresso beans and mountain dew. I had to make a decision. I was a full time student for 8 months. By the time I was hired as a PCT (just prior to graduation) I had learned one very important fact: I was not Dave Ramsey!
Now if you are of the wealthier set, or your parents are rather, then this may be an option for you to follow Mr. Ramsey’s teachings. They make sense. Spend no unneccessary cash, to stay at home and attend school full time with paid for classes (scholarships, work studies, savings, etc.), to push your very humble car for at least a decade because it was a cash purchase. Save your every coin and dollar and have 3-6 months savings set aside at all times. These ARE very realistic goals and completely doable…for you.
But according to studies done by CareerBuilder in 2017 and published most recently by NBC News 78% of Americans live paycheck to paycheck and are being overwhelmed by debt. So, apparently, I am not alone in my experience.
Now I am not a person obsessed with tags, the latest model car, designer, or keeping up with the Kardashians or the Carters. As a matter of fact, I don’t wear name brands, I don’t buy them, and my car is still paid off.
But life for the pressurized Middle Class requires credit to live. My cellphone did a credit check to determine my plan eligibility. My utilities required a credit check to calculate a deposit on the home that I rented for six years and more recently in my new townhouse. I remember the lowest moment in my life was needing internet service in nursing school and having to put it in my mother’s name. Even employers, in supervisory positions, financially sensitive positions monitor your credit! You want to be an entrepreneur? Well you should know that to be insured and bonded in many of these endeavors require good credit. This is from personal knowledge as I planned to establish my own travel agency to start arranging flights to Cuba.
Responsible credit is possible and achievable and though challenging as a single parent, it is something I am on the cusp of. It is imperative that you keep utilizing your credit but no more than you can reasonably manage. Your total revolving credit (car loan, installment loans, credit lines) should be no more than 30% of your income. Everything must be paid on time and never more than 30 days past due. It’s more than the fee at play. Minimum payments on a card, even a low balance card, are bad. Not just because of the interest they compound that indicate it will take 107 years to pay off your debt but also it shows early indicators that you are having financial struggles and your credit score will suffer.
Pulling a credit score each year can help you keep track of these things. There are three credit reporting agencies: Equifax, TransUnion, and Experian. It varies by location which one is used so keep them all clean. It’s easy because you are entitled to a free one annually. You can write in a request or go to http://www.annualcreditreport.com and print yours up. It’s a good time to look over things, dispute inaccuracies, and make sure you are on the right track. Keep in mind: Your report and your score are two different things. The information within the credit report determines your credit score or FICO score. This score can be as low as 330 or as high as 850. On average, the median credit score, according to Experian, is 687. The minimum score for good credit is 700.
Debt is a dirty word. Living debt free is a reasonable goal and having 3-6 months savings as a stressed out working class is something to plan and save towards. Going on vacations once a month or throwing extravagant parties on The Bank and then secretly spending the next decade paying it back is something few of us have done or will ever do. Debt and Credit are very different and exclusive however and managing them are an art. Manage your relationship with your credit responsibly and make that magic number work for you and all your dreams.