In personal finance expert Lynnette Khalfani-Cox’s latest book, Perfect Credit: 7 Steps to a Great Credit Rating, she outlines the steps consumers need to take in order to get their credit in tip-top shape. I recently sat down with the Money Coach and got the scoop.
Why did you write this book?
I personally had struggles with credit issues. I have great credit now, but for many years I had really bad credit, and I know what it’s like to suffer through that. I also want to show consumers how being in debt impacts your ability to have great credit. There’s a big tie-in between credit and debt.
What is perfect credit? Does it mean having no debt?
No, absolutely not. I define perfect credit in the book, in terms of objective measures and what it means. Your credit score is one objective way for you to look at how well you’re managing your credit. I consider anybody who has a 760 or higher FICO score to be in that perfect credit range. Things like your ability to sign on the dotted line and get any loan that you want based upon the strength of your credit reputation is one factor that determines whether or not you have perfect credit. Another thing, as far as debt, is that you have to know exactly where your finances stand so that you have the ability to eliminate bad forms of debt such as high rate debt and consumer debt like credit cards. Some people can have great credit and still have debt. It can actually help your credit rating to show multiple forms of debt or multiple types of loans in your credit profile because it accounts for 10% of your FICO score.
What are some barriers to perfect credit?
Many consumers don’t understand the rules of credit. They might know some of the basics, such as paying on time, but they don’t really understand the unwritten rules about credit. I learned a lot of this through trial and error, but I’ve also learned through the work I’ve done with consumers. In general, we need to know the three dominant rules of the credit world, which are outlined in the book. If you don’t know the undeclared rules of credit, you’re sunk. If you understand how things work, you can play by the rules and know what to do if they change.
If you already have great credit, how do you maintain it?
The first thing is to continue to pay all your bills on time. That’s paramount because the reality is, for those who have really great credit ratings, the smallest slip up can hurt them the most. For example, the person who has a 600 FICO score who has a late payment might only see their FICO score drop a fraction of the amount of someone with a 750 or 800 FICO score. It’s imperative that the person who has great credit works overtime to make sure they don’t do anything that can be counted as a misstep, such as making a late payment. Continue to practice good financial habits and pay close attention to any changes in your credit report.
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