Tips for successful credit management:

1. Always pay your bills on time. Setting up reminders or automatic payments can prevent late payments and the resulting negative effect on your credit.
2. Keep your credit utilization low. Use no more than 30% of your available credit to keep your score higher. Eliminating high debt balances will help you reach low utilization.
3. Diversify your credit types. Having a mix of credit types (credit cards, installment loans, mortgages) can have a positive impact on your score, just be careful to take on only what you can manage.
4. Limit credit requests. Each time you apply for credit, a hard inquiry is recorded on your credit report. Too many hard inquiries can lower your credit score. Be selective about applying for new credit.
5. Keep old accounts open. Part of the credit scoring formula is based on the length of your credit history. Closing older accounts can lower your credit score.
6. Monitor your credit report and dispute any errors. Correcting any inaccuracies and errors can improve your credit score.

Properly managing your credit can make a world of difference in your financial future. Take these steps now to be on the right path to financial freedom!

Find Out More with MyMilitarySavings.com and Finance!

What is a credit score?

A credit score is a three-digit number computed to represent your creditworthiness to a lender. Credit scores range from a low of 300 to a high of 850 with higher scores indicating a higher confidence by lenders that you will repay what you’ve borrowed. Before the creation of the credit score, individual lenders determined creditworthiness on an individual basis by relying on personal relationships with local merchants and bankers as well as character references. With the advent of computers and better communications, creating a credit score process simplified the process for lenders by relying on the numbers as an indicator.

How are credit scores computed?

There are two major credit scores used today. The well-known FICO score, a service of the Fair Isaac Corporation, and the Vantage Score, a joint venture of the three major credit reporting bureaus Experian, TransUnion, and Equifax. Payment history, credit utilization (the amount of total credit limit in use), credit history, mix of credit, and recent credit activity make up the factors measured in computing a credit score. While the exact algorithms are trade secrets, we can know the weightings of each factor and how to use them to our advantage, and then we look at how to improve your credit score.

What is considered a good score?

Credit scores are measured in bands as your numerical credit score fluctuates often based on multiple factors and reporting dates. Typical score ranges:

• Poor: Below 580
• Fair: 580- 669
• Good: 670 – 739
• Very Good: 740 – 799
• Exceptional: 800 and above

What are the advantages of a good score?

• Improved loan approval chances – A higher score suggests more confidence in the borrower repaying the loan as agreed upon.
• Lower interest rates – Higher scores indicate you are a better credit risk and that can result in lower interest rates saving you money over the life of the loan.
• Higher credit limits – Lenders are more comfortable lending you more money with a higher score.
• Better employment opportunities – Many employers check credit scores and history as part of the hiring process.

There are several ways to maintain and improve your credit score:

• ALWAYS pay bills on time – Payment history comprises 35 – 40% of your credit score. Even one late payment severely affects your score. Paying your credit card in full monthly prevents late payments, fees, and interest charges while keeping you well below your limit.
• Keep your balances low – Credit utilization (the percentage of your credit limit in use) makes up 20 to 30% of your score. Keeping your balance below 30% of your credit limit helps maximize this portion of your score.
• Maintain older accounts – Length of credit history accounts for 15 to 21%. The longer you keep the account (in good standing), the higher your score. Closing a newer card instead of an older card protects your credit score.
• Avoid opening too many accounts – Each new credit application reduces your average length of credit history and will temporarily lower your score.
• Monitor your credit reports – Many credit reports contain erroneous information. You can dispute errors in your credit history with just a letter or email.

Since we are talking about credit reports, did you know that you can get a FREE credit report annually? It contains information from all 3 of the credit bureaus mentioned before! It is good to check in and make sure that you don’t see anything unexpected on there and to make sure that everything is on track as well!

Do I need a credit score?

There are good reasons to maintain a good credit history and resulting credit score. In addition to the advantages listed earlier, reducing interest and debt payments improves your financial position. The more savings and investments you have, the less dependent on credit you can be. The less dependent on credit you are the less impact your score makes on your life. People who do not use credit can get to the point of having an “undeterminable” FICO score but that is not necessarily a bad thing, and will not prevent them from obtaining a mortgage. Many lenders will do their underwriting to determine your ability to pay a mortgage based on your income, savings, investments, and lack of a bad credit history. Another common misconception is that military personnel with a security clearance must have a good credit score to maintain their clearance. That is not true. While financial mismanagement is an indicator of being a security risk, having a poor credit score and debt is not a disqualifier, especially if the clearance holder has a plan and is taking the appropriate steps to clear up the negative issue. Bottom line: The more financially secure you are the less “need” you have for a credit score. There is nothing in your credit score that indicates wealth. Checking and savings balances and the amount of your investments have zero effect on your credit score, but the opposite can be true. Every dollar you spend propping up your credit score with debt and interest payments is one less dollar you can save and invest.

What other “numbers” are important?

So, if my credit score is not a major factor in my financial life, what numbers should I focus on? Great question!

Everyone should have an emergency fund. When, not if, an emergency comes your way, having money available to cover the expense or lost income will turn an emergency into an inconvenience and allow you to continue your life without major financial disruption. Your emergency fund eliminates the need to rely on your credit cards or borrow money to cover the expense. Having three to six months of living expenses is widely accepted as a good amount set aside.

Another good “number” is some financial cushion in your checking account to eliminate the stress of an overdraft and the resulting fees. We all make the occasional mistake and not tracking our cash flow can result in an unpleasant surprise. The exact amount of cushion is a personal choice based on your income, expenses, and situation, but an extra $25 to $100 in your account offers protection and peace of mind.

Tracking and comparing your net worth a few times a year is a good exercise to ensure your finances are going in the right direction. You want to see decreasing debt and increasing savings and investments over time. Seeing a negative trend can be an indicator that financial changes are necessary. Your net worth is the value of everything you own less the total amount of everything you owe. A simple net worth statement can be just the value of your home and financial assets less mortgage and all other debts, although you may want to include the value of other assets you own including autos, furniture, etc.

Is your insurance coverage adequate? Do you have the right kinds of insurance in the right amounts to protect you? It doesn’t take much wind or water to cause a lot of damage to your home and a minor car accident can result in tens of thousands of dollars in damages and injuries very quickly. Take some time to make sure these numbers are squared away too.

Maintaining a good credit score may be an important part of your life depending on your stage and situation in life, but is not the only number you should focus on.

Find Out More with MyMilitarySavings.com and Finance!

Your credit card balance is the amount you owe on your credit card after purchases, payments, and interest charges are applied. Credit cards are considered revolving credit accounts with a fixed credit limit, that allow additional purchases and payment amounts are based on the ending balance. Banks set the terms of the cards but are regulated by federal and state laws. You can read about the Credit Card Accountability Responsibility and Disclosure Act of 2009, also known as the CARD Act, at Credit Card Accountability Responsibility and Disclosure Act of 2009 (ftc.gov). This law dictates how banks disclose data and apply interest and payments.

Your credit score is a numeric representation of your creditworthiness based on your credit history derived by a combination of factors including payment history, credit utilization (% of your credit limit being used), length of credit history, the mix of types of credit (car, credit cards, mortgages, consumer loans, etc.), etc. There are two major rating tools that are popular; FICO and VantageScore. FICO is the market leader, but there is no “one” FICO score, but rather at least 19 other FICO® scores used by lenders depending on the type of credit being measured. Your FICO score could change from day to day based on the version, purpose, and how recently your credit data was received. You can see all of the FICO score models at the FICO Score site. The VantageScore model was developed by the three nationally recognized credit reporting companies Equifax, Experian, and TransUnion because there was a need for a highly consistent, more predictive scoring model that is easy to understand and apply.

Find Out More with MyMilitarySavings.com and Finances!

One of my other favorite things (besides raindrops on roses and whiskers on kittens… ha) is simple craft projects that look chic and trick you into thinking that it took a lot more effort than it really did. It’s like finding a fantabulous outfit from the thrift store that cost you $10 but you wear it and feel like a million. Ya know?! This Birch Tree Canvas is exactly that… an insanely easy craft that I think looks store-worthy once it’s finished. I’m pretty sure I would have bought this if I found it at my favorite craft spot and didn’t know any better, that it can simply be recreated! So. The cat is out of the bag. Save your moola and craft this up yourself!

The trick to EASY birch trees is an old credit card. Or ID card. Or whatever card you don’t need anymore. You use this to scrape black paint along the edges of your trees. Bam. Whoda thunk?? Stay with me here… I’ll explain it all.

This is what you’ll need for this project:

• A canvas (I used an 18″x24″)
• Painters tape or masking tape
• An old credit card
• Acrylic paint in colors of your choice (for the background) and black (for the trees)

The how to:

1) Place tape down to create your tree trunks. Stick two pieces side by side to create thicker trunks, place some at a slant, and even crisscross one or two to add a little depth to the picture. Turn your canvas over once this is done and smooth it out firmly to make sure the tape is adhered completely at the edges.

2) Paint the background of your picture. You may choose to use bold colors, a pigment that matches the color scheme in your room, or a neutral tone. I chose a very light grey but decided to do a reverse ombré at the bottom with darker grey colors.

I had grey acrylic paint but decided that I wanted a much lighter shade for my background so I added white to the grey to create the perfect color. To create the reverse ombré I added black to the plain grey acrylic paint to mix the darkest shade that I wanted to have at the very bottom of my canvas. I dabbed this dark grey color at the very bottom and blended it upwards with a dry paintbrush. I then added a touch of white to that dark grey paint to lighten it a bit and I painted this color right above the dark grey on my canvas, again blending upwards with a dry brush and blending down as well. I added a touch of white twice more and repeated that process until I had created the look I wanted. This reverse ombré reminds me of peering through the forest and seeing the sunlight pierce the sky towards the top of the canvas, but as you look deeper into the forest and lower towards the ground the light diminishes and it is more damp, cold, and earthy. Man, I can almost smell it. Tree hugger here, I told ya!

3) Once your background has dried, remove the strips of tape. If you crisscrossed any, only remove the top strip at this point.

4) Begin painting with your credit card! The fun part Before attempting this on your canvas I would suggest a few practice strokes on a piece of paper to understand how exactly this works. It all depends on how hard you press, how much paint you apply, how far you smear, etc. It’s simple, don’t get me wrong, but practice never hurts. As you see in the photo below, apply paint to the edge of your card and then place the card straight down on your canvas at the edge of your tree trunk. Then turn the card sideways and smear inwards.

Play around with the paint. If you add a lot to your card, you will end up with thicker smudges. You will want to alternate between both thick and thin paint to get a realistic birch tree look.

5) If you had crisscrossed any tape to give the appearance of a tree resting behind another tree, you should still have that last piece of tape on your canvas as I described in step 3. Once all of your tree trunks have been painted you will then remove that final tape strip and paint it as well. This will become the tree trunk that is farthest in front.

Step 6) Once your paint has dried, you will have a beauty similar to this! Now you can stop here or you can choose to add a little decorative heart like I did, perhaps with your name or your and your spouse’s initials? You know, like a carving in a tree that young sweethearts tend to do.

I actually already have a tree painting with my husband’s and my initials (but it isn’t a birch tree… aha!) so I decided to add a heart with our anniversary date instead. I traced it with pencil on the largest area of tree trunk that was unpainted and I used a small paintbrush and gold acrylic paint to cover it.

NOW my masterpiece was finished!

Let’s be honest – I never would have thought to paint trees with a card until I came across Angela Anderson’s blog (view it here). I know artist knives exist for similar reasons of just slabbing paint on a canvas (like, to add dimension to a mountain or something… google Bob Ross, you’ll see what I’m sayin’!) but this handy dandy card technique had me in awe. Now the possibilities are endless… I have so many ideas fluttering through my head! Stay tuned and perhaps I’ll be sharing more soon!

For more DIY projects and fun family crafts, visit MyMilitarySavings.com!