ComproTax Talks!

By Cary Snyder
csnyder@wyomingnews.com

CHEYENNE — The three-digit number can make or break you.

It can mean the difference between affording the home of your dreams or continuing to devote a significant portion of your income to rent.

The friend — or foe — is your credit score.

But when it comes to knowing how to build a high score or repair a poor mark, many people are uninformed. After all, there is no required class adults must take before they begin developing a credit history and go in search of that first home or new car.

For example, do you know the difference between simple and compound interest? The former applies only to the principal balance, while the latter also applies to the accumulated interest.

“Nobody teaches us that. All we get taught is 4 percent vs. 8 percent,” said Travis Lingenfelter.

Lingenfelter, 25, filed for bankruptcy at age 21, the result, he said, of falling victim to universal clauses and overextending his credit.

A universal clause, by the way, enables credit card companies to raise your interest rate if you make a late payment or default on another account.

With stints as an account executive and general manager at finance companies, Lingenfelter said he grew frustrated with his clients’ lack of knowledge on the basics of credit. His personal and professional experience motivated him to become an economic consultant devoted to repairing poor credit and educating individuals and businesses about sound credit management.

A little more than a year ago, he started Legacy Consulting Group Inc. in Cheyenne.

“That’s why I have a chip on my shoulder,” he said. “I’m mad I wasn’t taught about this stuff earlier on.”

Lingenfelter said the majority of his clients are in their early 20s to mid-30s. He said the most common credit trouble he sees locally is due to accrued debt because of medical expenses, often among people who do not have health insurance. Others are often not prepared when the interest rates rise on their credit cards.

Since acquiring credit is often the most difficult when people need it most, Lingenfelter advises people to get credit when they can.

“Have it available,” he said. “That’s one way to avoid mistakes.”

Perhaps it’s not surprising that the etymology of mortgage can be traced to the Old French word morgage, which means “dead pledge.”

Many homeowners commit themselves to making monthly mortgage payments for up to 30 years, and a 100-point difference in a personal credit score can literally add up to tens of thousands of dollars over the life of the mortgage.

A credit score between 700 and 759 in a 30-year $200,000 fixed mortgage could yield an interest rate of 6.125 percent, leading to monthly payments of $1,215. A score between 620 and 659 could yield an interest rate of 7.219 percent and monthly payments of $1,360, according to myFICO.com.

Over 30 years, the borrower with the lower score would pay an extra $52,200.

While a credit rating is a vital component in securing a loan and determining its interest rate on a home loan, there are other factors involved.

Current income, employment history, as well as any unresolved or outstanding payments an applicant has also play a role, said Wade Harris of All State Mortgage in Cheyenne.

Most mortgage lenders want applicants to have a score of at least 620, but some loans through the Federal Housing Administration can be secured with a score as low as 580, he said.

To improve credit scores, Harris advised keeping outstanding balances as low as possible. A general rule of thumb is to keep a credit card balance below 30 percent of the credit limit.

It also is important to establish a credit history, with one option being to get a secured credit card through a bank that requires a deposit equal to the amount of the credit limit, according to Lingenfelter. That helps build a credit history while making you unable to spend money you do not have.

Factors that go into your credit score include the number of accounts you have, their outstanding balances and how long they have been open. Overdue parking tickets and library fines can affect your score, Lingenfelter said.

He said many people may not realize that when they pay off a credit account, it is best to leave it open, even if it is not likely to be used again. The reason, he said, is that closing the account will shorten your credit history and possibly lower your score.

The basics of credit management and personal finance are taught in several classes at high schools throughout Wyoming. The state now requires students to have a basic competence in personal finance skills before they graduate, said Jeff Stone, career and technical education coordinator for Laramie County School District 1.

Stone said he believes the requirement was necessary because many students have jobs, make car payments and are responsible for paying their own car insurance.

“It is a real relevant topic to a teenager to start their own money management process,” he said.

Jackie Donnelly, head of the Family and Consumer Science Department at Cheyenne’s East High, said there are multiple classes in the department that involve financial management, including culinary arts, where running a restaurant is addressed.

Donnelly said she and other educators often discuss how high-school students and recent graduates expect to be able to accumulate material items that they cannot afford.

“They’re hearing it,” she said of basic financial principles, “but I really think this generation, they want it now, and they don’t want to wait.”

Lingenfelter said he often sees people with similar spending habits.

“The problem with today’s economy is that people don’t buy what they can afford. They buy what they can afford on a monthly payment,” he said.