The Importance Of Building And Maintaining A Favorable Credit Score

Do you think as a pro athlete with a large bank account you don’t need to bother or worry about credit because you have cash?

Think again.

Credit is an important part of our society, and your credit history is used by lenders to determine whether or not to extend you credit. In addition, more and more businesses are making the case that your credit should be used to make decisions about extending goods or services to you.

“I never worried about credit during my career, because I had access to cash,” said a 10-year NFL veteran, who chose to remain anonymous. He said this strategy worked well for him for many years, because he was able to purchase a home, cars and other items, whether he used cash or credit. This method was fine while he had the NFL salary to sustain his lifestyle. But he later discovered two things: He was paying far more than he should have for items obtained with credit, and he was not building a strong credit history for his future.

“Individuals often believe that if they have significant cash flow there is no real need to utilize credit,” said NFLPA Director of Financial Programs Dana Hammonds. “Developing a good credit history and credit score is an essential component to your overall financial security. Building a solid credit history gives you more buying power when you need it, and it can be quite valuable when you are buying a home, seeking employment or starting a business.”

According to Hammonds, players should think of their credit report as a financial score card. It details every aspect of a credit history from payment patterns to employment, lenders use it to get a full picture of an individual’s history. Credit reports also contain your credit score, the number of inquiries from a lender, any liens, bankruptcies and details of how long it took you to repay your loans.

Credit bureaus use a scoring system based on your credit habits and history to determine if and how much credit to provide to you. The components of the scoring system are as follows:

Payment History - 35%
Amounts Owed - 30%
Length of Credit History - 15%
New Credit - 10%
Mix of Credit - 10%

Hammonds suggests the following five steps to building a great credit score:

1. Always pay on time. The most important factor in establishing good credit is your payment history. One late payment can decrease your score by as many as 10 points. Continue this pattern, and watch your score head south. “One thing to remember,” cautions Hammonds, “is that it’s a lot easier to damage your credit than to repair it.” For instance, one late or missed payment will have an immediate negative impact on your credit score. However, it may take three to nine months to recover from this mistake.

2. Avoid maxing out your cards. As a rule of thumb, limit your credit card balance to no more than 25 percent of the amount of credit available on your cards. Anything more than this will cause lenders to worry about your ability to use credit wisely.

3. Don’t close out old credit cards. Just because you have the credit doesn’t mean you have to use it. Lenders look to the length of time you have actually had credit when evaluating your creditworthiness. So, if you had a credit card or account from a department store since you were 18, but no longer carry a balance or use the card, keep it. This is an example of positive, long-standing credit.

4. Avoid applying for unnecessary credit. Every time you apply for credit it counts as an inquiry into your credit profile. The impact on your credit score is about two points per instance. If you are applying for a mortgage or car, submit all of your applications within a two to four-week time period. Credit bureaus will only count this as one inquiry rather than several.

5. Utilize a healthy mix of credit. A good mix of credit cards includes installment accounts (loans), revolving accounts (credit cards) and retail store accounts.

“Responsible use of any form of debt is always encouraged,” said Hammonds. “You should avoid using credit to obtain things you want and instead, use it for things you need. Remember, the ultimate goal is to become financially sound and have enough cash and credit to last a lifetime.”

- NFL Players.com