There are situations in life where what you don’t know could actually kill you. You don’t know that the snake sitting next to your chair is one of the deadliest in the world. You don’t know that little spider is a Brown Recluse and that its bite could send you to the hospital or worse. And maybe you don’t know that tree branch right above you is rotten and could fall on you any minute.
While the things you don’t know about your personal finances won’t kill you they can definitely cost you. For example, do you know your net worth? If you don’t, you’re not the Lone Ranger. Most Americans have no idea about the net worth. It’s very important for you to know this and it’s very easy to calculate. It’s just the total value of your assets including your savings and retirement accounts, your home, car, any collectibles you own and your boat, your second home or RV (if any of these are applicable). Subtract your total debts from that number including the payments on your house and car and you’ll have your net worth. It’s important because it’s the key to keeping track of your financial health. When you know what your net worth is, you will have a good picture of the state of your finances showing how you handle your money. Once you’ve determined your net worth you should calculate it regularly like once a quarter so that you will be able to see those areas where you can make improvements.
What’s your mortgage interest rate?
There was a report released recently by the website Bankrate revealing that an amazing 35% of us don’t know our mortgage interest rates. Or maybe you once knew your interest rate but forgot it over the years. The interest rates on mortgages have hovered around historical lows for the past few years. If you don’t know your interest rate you need to look it up, as you might be able to benefit from refinancing. We’ve heard stories of people who refinanced their mortgages and saved $200, $300, or even $400 a month. Wouldn’t this kind of increase help you?
Have you seen your credit report recently – or ever?
If you haven’t seen your credit reports recently it’s absolutely critical that you get them. You have three reports, as there are three credit-reporting bureaus. They are Experian, Equifax and TransUnion. You can get your report from each of them free once a year or on the website www.annualcreditreport.com.
Why is this so important? It’s because your credit report has very detailed information about your credit history. This includes the way you have used credit cards, your auto loans and any debts that were sent to collection. Even more important, they could contain errors that are hurting your credit. One recent FTC study revealed that almost 40,000,000 Americans have mistakes in their credit reports. Given the fact that fewer than one in five of us check our reports, the odds are that most people have errors in theirs but don’t know about them. If it turns out that you are one of these people and that it’s a serious error or even a case of identity theft, you definitely should dispute it with the appropriate credit bureau. While all three of the credit bureaus have forms on their sites for this purpose most experts say it’s best to dispute the matter in writing and be sure to send a letter registered and return receipt requested. Once the credit bureau receives your letter it’s obligated by law to contact the institution that provided the information and ask for it to be verified. If the institution doesn’t verify the information or fails to respond within 30 days, the credit bureau must remove the item from your report, which could give your credit score a nice boost.
Speaking of your credit score
Something else that’s crucial to know is your credit score. It’s the little three-digit number that represents how much of a risk you are for credit. The credit scoring service used by the overwhelming majority of lenders is FICO. Its scores range from 300 to 850 and as you might guess, the higher your score the better. Everyone from lenders to landlords look at your credit score as do an ever-growing percentage of employers. The National Foundation for Credit Counseling recently discovered that 60% of us haven’t reviewed our credit scores within the previous year. This can be a really big mistake, especially if you’re looking for a loan. The reason for this is that there is an inverse ratio at work here. The higher your credit score in the lower your interest rate will be. If your score is somewhere in the mid-700s you will save thousands of dollars in low interest rates. Conversely, if your score is below 620 and you apply for a loan it will be at a higher interest rate and less favorable terms or you might not even be able to get the loan at all.
Where can you get your credit score? The only place you can get your true FICO score is on its website www.myfico.com where you may have to pay for it. The three credit reporting bureaus will give you your credit score though it won’t be your true FICO score. There are also sites like CreditKarma.com and CreditSesame.com where you can get your credit scores. While these won’t be your true FICO scores they should be close enough to give you a good idea as to how lenders will view you.
Your credit card statements
When one of your credit card statements arrives in the mail to you review it carefully or do you simply make a note of your balance and then file it away until it’s time to make a payment? In this day and age of identity theft and data breaches its critical to review your credit card statements carefully every month. Look for transactions you don’t remember having made or merchants you can’t remember doing business with. Also look for small charges of one dollar or less. What identity thieves often do is make a very small charge to your account to see what happens. If you don’t spot the charge and dispute that you could then be in for a world of trouble, as the thief will then hit your card hard. The same is true of any errors you find. Most credit card issuers restrict your liability in cases like this to $50 and may even waive that. But if you do find an error it’s important that you report it to the credit card issuer within 60 days or it’s possible you could be stuck with the charge.
