Editor’s note: This is the first column in a new series about personal finance. Each will be written by one of the Coast Guard’s new personal finance managers, who are standing by to support your financial questions.
The importance of monitoring your credit cannot be overstated and these days it cannot be ignored. There are constant commercials, pop-up ads, and offers for free credit scores. When you are being blasted with so much information, how do you sort out the best and most relevant resources?
Below are some of the common credit and credit card myths circulating in the Coast Guard, according to our financial educators in the Personal Financial Management Program.
Myth 1: One late (or missed) payment won’t hurt your credit score.
The number one thing that you can do in support of your credit health is to avoid late and missed payments. Stick with the mantra “on time, every time.” Making minimum payments will meet this need. However, to improve, versus maintain, your credit score and overall financial health you should, when possible, pay more than the minimum.
If there are months when making the minimum payment is all your budget can afford, that is okay. Make that payment on time and move forward with a plan to increase your monthly payments as soon as you can. A balance that lingers month-to-month on your credit card not only costs more, but it also impacts the second highest weighted component of your credit score—credit utilization, or the percentage of the total available credit you are using.
When you are ready to level-up your credit score, you should pay off old balances and then pay off new purchases every month. This way you can use the conveniences of credit cards without paying extra in interest and fees.
Myth 2: Credit cards are bad and should be avoided.
Don’t confuse having and using credit cards with overspending and growing a credit card balance. When you track your spending, plan purchases, and save for expensive items, using credit cards can be worthwhile. Here are some of the advantages to consider for responsible use of credit cards:
- Loss protection – You are only responsible for up to $50 of fraudulent charges when a credit card is reported as lost or stolen. If you make the report promptly, you may not be responsible for any fraudulent purchases made.
- Consumer protection – Under the Fair Credit Billing Act, purchases made by credit cards give consumers another level of support for refunds on lost, damaged or disappointing products and services. If a company is not responsive to refund requests, you can contact the credit card company to initiate the dispute process.
- Product/Service protection – Some credit cards automatically add extended warranties and insurance for things like travel. Read your card agreement statement and use these benefits as they apply.
- Points, Miles, and Cashback – There can be perks to using credit cards, but this can be a slippery slope. The question to ask yourself is, “are you getting more from this deal than the credit card company is getting?” Are you paying off your balance each month and avoiding interest? Paying interest takes away from the value of any rewards you are receiving. Next, do you pay an annual fee for this account? If yes, do the rewards you earn exceed the cost of the annual fee? Here’s an example: when you avoid interest and only pay an annual fee of $49, you are winning if you earn $275 in rewards or cashback.
Myth 3: When you get married, you have a joint credit score with your spouse.
You and your partner will maintain personal credit reports and scores, even after marriage. You may share some accounts or loans that will show on both of your credit reports, but the impact those accounts have will remain individualized. Each person’s credit health will be calculated based on their credit history paired with the new joint credit accounts. If these joint accounts are neglected and payments are made late or missed, the negative impacts will be shared and will show on both your credit report and your spouse’s credit report. Good payment habits will also reflect on both reports. Imagine the power you must build a strong financial future together!
Key Takeaways
- Make payments “on time, every time,”—if only just the minimum.
- Use credit wisely. It can be a tool to help you build a secure financial future.
- Establish and maintain good payment habits with your spouse to positively impact both of your individual credit scores.
- Monitor your credit report, dispute any fraudulent activity or incorrect information and request the removal of outdated negative indicators.
The Coast Guard Personal Financial Management Program is here for you!
You have a team! The Coast Guard Personal Financial Management Program is here to provide education, resources, and individual appointments in support of your financial goals.
Misconceptions like the ones listed above may make it feel like your credit score calculation is out of your hands. We can help you navigate through the maze. By learning about financial topics, you will be empowered to make better decisions and shift behaviors. You can reach your financial goals with consistent and thoughtful credit habits.
Resources
- Contact your local Personal Financial Manager (PFM), your assigned Command Financial Specialist (CFS) or a CG SUPRT Money Coach for more information.
- For additional resources and information for the Personal Financial Management Program, please visit their website.
About the writer
Angela LeMaster is an AFC® and serves as the personal financial manager for District 13, with a home base in Seattle, Washington. She has been working in direct service of military families since 2003 and is married to an Army retiree. In their free time, they enjoy exploring the Pacific Northwest with their dog. Angela loves to talk with members about the building blocks of financial health and helping them to create a vision and action plan for future financial goals! You can reach her at 206-217-6615 or angela.d.lemaster@uscg.mil.