Many people do not realize the significance of their Credit Score or the importance of reviewing their Credit Report. Look, many of you know that I had a fairly successful 20-year career in Financial Services prior to starting my own Financial Planning Firm. But what you may not know is that I had to learn about Financial Planning the hard way. I hired several people who held themselves out as "Financial Advisors" in my twenties. None of them focused on anything except my Investments and they were paid commissions. It wasn't until I was older and wiser (in my thirties) that I hired a Certified Financial Planner (TM) Professional. Not only did he review my Investments, but he discussed Retirement Planning and Taxes. That was the closest I ever came to having a Financial Advisor create a Comprehensive Financial Plan for me.

I believe in being as Comprehensive as possible. When I am hired by a client, the first thing I do is start gathering information, which is crucial to the planning process. I sort the data and start to analyze 7 Different Topics of Financial Planning. These topics are Current Financial Health, Risk (Insurance), Investments, Retirement, Taxes, Estate Planning, and Education. This is the foundation of a Comprehensive Financial Plan. Each of these topics can have an impact on the others which emphasizes the importance of being thorough. One subject that can greatly affect several areas of Financial Planning is the client's Credit Score. Many people want to improve their credit score but they don't know where to start.

Let's start at the beginning by looking at your credit report. Your credit report is an accumulation of information about your bills and loans, repayment history, available credit, and outstanding debts. Many lenders use FICO Scorecards, but they use several different Scorecards. In addition to its base versions, FICO also offers industry-specific scoring models (and scores) for distinct credit products, such as auto loans, credit cards and mortgages. Base FICO® scores range from 300 to 850 and are made up of the following factors: Payment history: 35%, Amounts owed: 30%, Length of credit history: 15%, New credit: 10%, and Credit mix: 10%. A consumer's FICO score is really just a numerical representation of the odds that they will default on a loan by 90 days or more. For example, the odds of such a default for a consumer with a credit score of 800+ is only 1,485:1. In contrast, the odds of default for a consumer with a credit score below 620 is 15:1. These reports are typically used by lenders when deciding whether or not to accept a loan or credit application. A healthy credit report can help you secure the funding you need to purchase a new home or car, pay for a child’s education, or start your own business. The following guidelines can help you maintain a healthy credit report:

Establish and maintain a good credit history. Your ability to pay off debt over time can help paint a more complete picture for a lender inquiring about your financial habits. Therefore, you may want to consider maintaining your oldest credit card. Credit companies often suggest that you also maintain a few accounts to demonstrate your commitment to managing multiple debt sources. Some experts such as Bryan Diez suggest the ideal mix of credit to be 2-4 bank credit cards, 1-2 store credit cards, a mortgage, and 1 personal loan such as an Auto Loan.

Control your number of credit inquiries. A large number of inquiries on your report may signal to a lender that you are in need of a lot of credit or are preparing to take on a large debt. The same holds true for opening several new credit cards at once (new credit). Neither situation bodes well for your ability to take on additional debt. Keep in mind that each time you apply for a new credit card, even if it is only to receive a free gift, an inquiry will appear on your credit report and remain on your report for two years. Keep in mind the scores for your FICO 8 Scorecard: Exceptional: 800+, Very good: 740 to 799, Good: 670 to 739, Fair: 580 to 669, Poor: 579 and below.

Opt-out of inclusion on marketing lists. While soft inquiries, those made by marketers and others wishing to sell you something, do not usually appear on the version of your credit report shown to lenders, these inquiries indicate that your personal information may be available and used by the companies listed, increasing your exposure to identity theft. Many marketers receive lists of potential customers directly from credit bureaus. You can “opt out” of being included on lists sold to these companies by either writing to each of the three credit bureaus or calling 1-888-5-OPT-OUT. Doing so will remove your name from marketing lists for two years.

According to the Fair Credit Reporting Act (FCRA), you can request a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. For your convenience, you can access all three agencies through a single website at www.annualcreditreport.com. Another option is to use a service such as Credit Karma (www.creditkarma.com) or Credit Sesame (www.creditsesame.com). Credit Karma shows you the different credit factors that can affect your scores and where you can work to try to improve your credit.

You can check your VantageScore® 3.0 credit scores from TransUnion and Equifax for free on Credit Karma, as well as your credit reports from TransUnion and Equifax. Credit Karma also offers credit monitoring which will send you alerts when there are important changes to your credit reports. This may help you spot potential errors or fraud. Using a service like this can give you tools to help you improve your credit. To maintain healthy credit, monitor your credit report regularly and take actions toward building and maintaining good credit.