I find it amazing how many of us don’t learn about our personal finances until the very moment that we’re trying to dig ourselves out of the heaping pile of debt we’re under. However, if I really sit back and think about it… that’s the way most things are. We fail to prepare and only try to find understanding after we’ve hit rock bottom or some disastrous event has taken place. Though learning from your mistakes is definitely worth applauding, wouldn’t it be nice if we could be proactive and prevent the mistakes to begin with?
Unfortunately, we don’t learn much about personal finances in school. We may learn how to do math in an effort to add up our paychecks and balance our checkbooks, but unless you go on to become an accounting major or something in the field, you learn about your personal finances through experiences. Therefore, it is imperative that you start educating yourself the very moment you start earning any type of money.
Most people are aware of how to add their income, how to make bank deposits/withdrawals, and how to pay the bills. However, these are not the only areas of personal finance that you should make yourself aware of. Below, are just two main areas of personal finance that I believe people should pay more attention to:
Know About Your Credit
Most people don’t educate themselves on their credit and its importance until it is damaged. However, your credit is ultimately your ticket to a successful future and when it’s damaged; it can affect you for almost a decade. So rather than have to clean up your credit, file bankruptcy, or wait 7-10 years for another shot, it’s best to know the basics ahead of time. Some factors to learn about your credit include:
- Knowing What Your Credit is Used For – Your credit history and score are used by lenders and service providers to determine your eligibility and trustworthiness. As anyone providing you with money or services upfront will want to know that you’re going to pay them back. While it would be nice for your word to be enough to seal the deal, often this is not the case. As such, your credit history shows how well you’ve paid back other accounts in the future.
- Know How Your Credit Score is Determined – Most people have no idea how their credit score is calculated, and this is a huge mistake. Various factors contribute to whether or not you have excellent, good, fair, or poor credit. If you’re not aware of these factors, you could essentially be making poor decisions that cause your credit score to plummet. The Wikipedia page on FICO gives a comprehensive explanation to the various factors that determine your credit score.
Know Your Rights as a Consumer
Many people aren’t aware that they have rights as a consumer. Whether it’s the purchase of an automobile or obtaining a credit card, businesses are held to certain ethical and legal standards that must be adhered to. If a consumer should fall victim to unfair or illegal business practices, they have a right to have their voice heard and may even be able to file suit against the guilty party. The government has designed consumer rights laws and protections to outline specific details on what those rights are.
One method of protection that is essential to comprehend is the Fair Credit Reporting Act (FCRA). Below are a few things you should understand:
- Know the Basics of the FCRA – Understanding the FCRA is essential to all consumers. According to Creditrepair.com, the FCRA was established in 1970 by the US government. The law is essentially designed to protect consumers and their credit history reporting. The law specifies what can be shared on a credit report and the various limitations within. As you already know your credit history is essential for doing anything from taking out a personal loan to purchasing a home, having these protections in place is essential.
- Know What Constitutes Fair Credit Reporting – If you’ve never really taken a look at your credit report before, then you probably have no idea what a business is legally allowed to report and what they are not. Having a full understanding of this can help you to ensure that your credit history is not purposefully tarnished by a company reporting fraudulent information. The FCRA can help you in understanding what constitutes fair credit reporting and what does not.
- Understand Your Rights to Dispute – If you review the FCRA, you’ll see that as a consumer, you have the right to dispute any information found on your credit report that is inaccurate. If you’re not aware of this, businesses can essentially place inaccuracies on your account that could impact you negatively for years to come. Understanding the process to file a dispute is essential so that anything that is untrue about your credit history can be updated and/or removed.
- Know Your Rights to Compensation – Should you determine that a company has reported inaccurate information on your report, the first thing to do would be to file a dispute. If a company is unwilling to remove the information and does not provide just cause, you may be able to be compensated for the damage their reporting has caused.
As you can see there’s more to your personal finances than just knowing how to sign a check, balance a checkbook, and paying bills. If you’re not fully informed about your finances and your rights as a consumer, you could fall victim to serious consequences that may or may not have been your fault. If it’s been a while since you’ve checked your credit report, I recommend obtaining a free one and going over it with a fine tooth comb. Assess what factors you’re contributing to damaging your credit score and also assess what other businesses might be doing to damage it as well. From there, you’re able to make more informed decisions that will ultimately keep you financially sound now and in the future.