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Why So Much Depends on One Little Number
Greg Lavelle • Nov 10, 2020
Most of us don’t appreciate the idea of our identities being reduced to a simple, three-digit number. But within the financial system, your credit score really does carry significant weight. Read on to learn why your credit score is so important, how it impacts your life, and what you can do about it.
It’s not all about a mortgage.
Most people associate credit scores with mortgages, and some have no idea of their score until they apply to purchase a home. Then, a steep learning curve begins. Not only will your credit score determine your interest rate and the type of loan you can attain; you might not be able to buy a home at all.
But it’s not all about getting a mortgage. Your score determines the interest rate on car loans and credit cards, too. And if you don’t have a great score, you can overpay to the tune of thousands of dollars. Even your auto insurance premiums can be partially determined by your credit worthiness, so maintaining a good score saves you money on numerous expenses.
Even employers will sometimes check your credit score as part of the hiring process. It would be a shame to miss out on a great opportunity due to a low score.
Understanding what is considered “good”.
Adding to the complications, it’s hard to set a goal when you don’t even know what a “good” score looks like. Generally speaking, a score above 670 is “good”, above 740 is “very good”, and anything above 800 is considered “excellent”. Individual lenders might impose slightly different standards, but generally speaking you should aim to get your score up into the 700s or above.
Earning a great credit score.
So, how do you build a great credit score anyway? It’s about more than just paying bills on time (although that is certainly important). Your history should include a mix of accounts (a car loan, a few credit cards, and so on). However, be very careful not to utilize more than about 35 percent of your available credit. If all of your cards are maxed out, even close to it, this will ding your score.
Making too many credit requests in a short period of time is also deemed risky behavior. And the length of your credit history matters, too. In other words, aim to build your profile gradually. Don’t rush out and apply for numerous accounts all at once, and keep balances low. Only buy what you can afford to pay off, use credit wisely, and make timely payments. Over time your score should improve.
As important as it is, your credit score is just one part of your overall financial outlook. For help with budgeting, setting goals, and saving for retirement, call us to schedule an appointment. We will be happy to guide you through these important decisions.
Life insurance isn't one-size-fits-all. Just as your life evolves over time, so too should your insurance coverage. Whether you're starting your career, raising a family, or enjoying retirement, understanding how to tailor your life insurance policy to your current life stage is essential for ensuring adequate protection for you and your loved ones. Starting Out: Young Professionals As a young professional just starting out in your career, life insurance might not be at the top of your priority list. However, this is the ideal time to secure coverage, as premiums are typically lower when you're young and healthy. A term life insurance policy can provide affordable protection for your loved ones in the event of your untimely passing while also allowing flexibility to upgrade to permanent coverage later on. Growing Family: Parents and Homeowners For parents and homeowners, life insurance becomes even more crucial. You want to ensure your family is financially secure and able to maintain their standard of living if something were to happen to you. Consider a combination of term and permanent life insurance to cover immediate expenses, such as mortgage payments and childcare costs, as well as long-term financial needs like college tuition and inheritance planning. Midlife Milestones: Empty Nesters and Career Climbers As your children grow up and become financially independent, your insurance needs may shift. You might choose to adjust your coverage to reflect your changing financial obligations and goals. This could mean reducing coverage amounts or transitioning to a policy with cash value accumulation features, such as whole life insurance, to supplement retirement savings and leave a legacy for your heirs. Retirement: Golden Years and Legacy Planning In retirement, life insurance can still play a valuable role in your financial plan. While your need for income replacement may decrease, you may still want coverage to cover final expenses, estate taxes, or leave a financial legacy for your loved ones. An insurance policy with guaranteed death benefits, such as universal life insurance, can provide peace of mind and help protect your assets for future generations. Review and Adjust Regularly Regardless of your life stage, it's essential to review your life insurance coverage regularly to ensure it continues to meet your needs. Major life events, such as marriage, divorce, birth of a child, or career changes, may warrant updates to your policy. Working with a trusted life insurance broker can help you incorporate these changes into your long-term plans and make informed decisions about your coverage. Life insurance is a vital component of your financial plan at every stage of life. Meet with us now and regularly in the future so that we can help you evaluate and adjust your life insurance policy to ensure that it truly meets your needs.
Receiving a notice from the IRS for an audit can be a nerve-wracking experience. The time, effort, and potential financial consequences make it a situation you'd rather avoid. Fortunately, many audits stem from avoidable errors. Here's how you can avoid the five most common audit triggers and keep your tax returns in the clear. Ensure You Report All Income Income discrepancies are a major red flag for the IRS. While taxes are typically withheld from regular wages, other sources of income, like business earnings or capital gains, may not have taxes automatically deducted. Be vigilant in accurately reporting all sources of income, whether you receive a 1099 form or not. Document and report any non-wage income meticulously to prevent underreporting. Explain Significant Income Fluctuations Significant fluctuations in income from year to year can draw the IRS's attention. If your income varies widely, provide explanations or notes with your tax filings. Whether it's due to changes in business circumstances or other factors, clarifying these fluctuations can help prevent misunderstandings. Document Business Losses Carefully While it's common for businesses to experience losses, chronic or substantial losses can raise eyebrows at the IRS. Keep detailed records of your business finances, especially in the early years. Additionally, if you operate a sole proprietorship, ensure your business activities are distinguishable from hobbies to justify loss deductions. Support Your Deductions Certain deductions, such as large charitable contributions or home office expenses, may attract scrutiny. Be prepared to provide supporting documentation for all deductions claimed on your tax return. Thorough records can help substantiate your deductions and alleviate concerns during an audit. Accurately Value Assets For estate tax returns, undervalued assets are a common trigger for audits. When valuing assets without a public market price, seek multiple appraisals from qualified professionals. Having multiple valuations can strengthen your position and minimize the risk of an audit. Remember, even if you enlist professional help for your taxes, the responsibility for accuracy ultimately lies with you. Review your tax returns carefully before signing them to ensure everything is in order. Understanding the Different Types of Audits IRS audits come in three main varieties, each with its own level of intensity. Correspondence Audit. Conducted through the mail, this audit is often triggered by missing information or minor discrepancies. Office Audit. Requires a visit to an IRS office, typically for more complex tax returns or multiple disputed items. Field Audit. The most comprehensive type, conducted in person at your home or business, involves a thorough examination of your return. Regardless of the type, the IRS will provide a written request for specific documents beforehand. By being proactive and thorough in your tax reporting, you can minimize the risk of an audit and ensure a smoother process if one does occur.
