I vividly remember my school days. It was a time when my parents relentlessly reviewed my homework, tests, and report cards, and then would admonish me if my grades didn’t measure up. It was a mandate that I fully commit to management of my GPA–and in my parent’s West Indian household, a solid “B†was barely making due. Their philosophy was achieving great grades was a ticket to a better life: the nation’s top colleges, elite graduate schools, and a high-paying job to launch a lucrative career.
Even though education remains a vital factor in securing a life filled with options, there’s another measure that’s equally crucial: your credit score. Having a poor credit score can severely limit or eliminate your access to virtually every aspect of the American dream, including purchasing the home you want, renting a decent apartment, buying a car, gaining
a promotion, or securing a job. According to the Society for Human Resources Management, nearly 60% of employers use credit checks as part of the screening process for job applicants. In a prospective employer’s mind, bad credit equals questionable integrity. (From a range of 300 to 850, an excellent credit score is 750 or higher, good is 680 to 740, fair is among the lower 600s, and anything lower is considered subprime.) It’s possible that an individual with a criminal record and a credit score of, say, 720 could have greater financial freedom than a person with a clean slate and bad credit.Your credit score represents the GPA for your life. A bad score is like a heavy piece of luggage that weighs you down, keeping a slew of opportunities out of reach. If by chance you’re able to engage in major financial
transactions or high-ticket purchases, expect to be slammed with obscene interest rates and unnecessary fees, become prey to predatory lending, or have to use cash as collateral. To make my point, I will share a real-life situation in which I witnessed a woman check into a luxury hotel during a conference using a debit card. Instead of just taking an imprint of her plastic as it would have done with a credit card, the hotel placed a hold on the available balance for the entire estimated bill as protection against the woman overspending during her stay. As a result, the hotel held $1,500 of her cash, and she did not have immediate access to her own money.African Americans continue to be the group disproportionately affected by credit mismanagement. Even during boom times, we had lower credit scores than our white counterparts. According to a recent Washington Post article, data collected by the Federal Reserve in 2003 revealed that less than 25% of African Americans held prime credit scores versus roughly 65% of whites.
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In recent years we have been disproportionately affected by the housing collapse. Borrowers with subprime loans defaulted at alarming rates, destroying household wealth. Moreover, the Great Recession forced many to deal with the worst credit-battering scenarios–bankruptcies, foreclosures, property repossessions, judgments, and collections. FICO reports that a foreclosure can remain on a credit report for seven years and lower a score by 85 to 160 points, a penalty second only to bankruptcy.
We must take action to reverse the trend. Far too many of us don’t know our credit score or information contained in our credit reports even though they’re readily accessible online or obtainable from the three credit bureaus–Equifax, Experian, and TransUnion–free of
charge, annually. Through that one action, we can review discrepancies and identify errors and problems in order to take corrective action. We must monitor our spending habits and uncover potential red flags on credit-based expenditures through alerts we can set up with our financial services firms. Moreover, we must do no less than protect the next generation not only by reviewing their financial activities as early as their collegiate years but by mandating they take credit literacy courses to help them build a strong credit history.It begins with us. We must seize control of our finances. Many have already missed out on prime wealth-building opportunities at a time when the cost of money couldn’t be cheaper. So let’s buckle down and get serious about managing our credit. It’s not only possible but an imperative for all of us to raise our GPAs.