Apparently, but unbeknownst to me, April is Financial Literacy Month. We really should have had a party. If I knew I would have baked a cake. Well, so it goes.
I am not sure who it is that is in charge of proclaiming special days and months. For some reason “Men in Black” comes to mind. This one sort of came from out of the blue but was mentioned in passing by Cameron Huddleston of GoBankingRates.com in a blog titled “Most Americans Can’t Pass This Tricky Finance Quiz, Survey Finds.”
The survey of 2,000 adults, conducted by GoBankingRates, showed that most adults could not correctly answer six common finance related questions. In fact, it would seem only about 2% of us would pass.
Here are the six questions they asked (if you wish to take the quiz and see the answers you can find it here):
- What are the 3 major credit bureaus?
- A 401k refers to a tax credit for retirement. True or False?
- Of the following, what best describes what “APY” is?
- Income does not impact your credit score. True or False?
- What does a CD offered by a bank stand for?
- What’s the difference between a saving account and a checking account?
How did you do? If you passed, have a donut on me! If not, time to study up!
The quiz overall is interesting. With regard to the business of debt collection, perhaps more so because we find many of the debtors we work with simply got themselves into a financial predicament due to a basic lack of knowledge of how to manage their money.
In particular question number 4 caught my attention. Often, maximizing one’s credit score is the pivot around which financial health revolves.
In a follow up blog by Kathleen Elkins (writing for CNBC: “Less than half of Americans can answer this key question about credit scores”) she elaborates a bit more on what goes into calculating a credit score.
Here are the five factors and their weighting that affect a person’s FICO score. They are (quoting directly from her blog here):
- Payment history (35 percent): Your repayment of past debt, whether it be credit card debt or a mortgage, is the most important factor because it helps determine how you’ll handle future payments. You want to make consistent, on-time payments to improve your credit or maintain a good score.
- Amounts owed (30 percent): This category is credit utilization, which is the ratio of how much you’ve spent on your credit card versus the card’s limit. Ideally, you want to use under 30 percent of your available credit.
- Length of credit history (15 percent): How long you’ve had an account open and the time since your most recent transaction also affects your score. Newer credit users may have a harder time getting a high score since there’s less data available on payment history.
- Credit mix (10 percent): Your score considers the types of credit you use, like credit cards, retail accounts, installment loans and mortgage loans.
- New credit (10 percent): Opening up new credit cards, especially all at once and if your history isn’t established, can count against you. Too many hard inquiries, such as those that occur when you’re applying for an apartment or signing up for a new card, can impact your score negatively, while soft inquiries, such as background checks, do not.
We use credit bureau reporting as a powerful tool in collecting bad debts as a consumer’s ability to obtain credit is directly linked to their credit score. That ability can be significantly impacted by a bad credit rating. Paying off bad debts quickly can often revive a poor credit score.
Over the past few years consumer debt has increased to historic levels and shows no signs of slowing down. Yet, most of our younger generations don’t even know what a credit score is let alone what factors play into it and why it is important.
Knowledge is power and financial knowledge can lead not only to financial power but even more importantly financial health.
A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years.