March is Credit Education Month, and many parents and caregivers are looking for ways  to explain this topic to their children. For many individuals, money is a topic that was not  discussed in their home growing up. There can be a wide range of emotions and personal  experiences with money that cause adults to avoid this topic all together. My mission as a  financial coach is to empower my clients to succeed financially. Understanding what creates a  credit score and where credit comes from is part of the financial education I offer.

Most of our children, ages 18 and under, have watched as we make purchases with  either debit and credit cards. Since these cards look almost identical explaining the difference  between the two forms of payment is important.Debit cards are connected to money in a  bank account, typically a checking account. When people use a credit card the money has  been loaned to the card holder, and if that money is not repaid in full by a set date the lender  can charge an interest rate.

In 2021, almost any place of business that accepts a credit card  will also accept a debit card for payment. As COVID-19 safety precautions increase, more  businesses are only accepting card payments. Studies from shown that American families have  an average $14,564 of credit card debt.

In 1989, the credit reporting company Fair Isaac Corporation created the general  purpose FICO score. This score is calculated by looking at a borrower’s relationship with debt.There are five categories that are reviewed to determine the score:

Payment History (35%)
Amounts Owed (30%)
Length of Credit History (15%)
Credit Mix (10%)
New Credit (10%).

However, the FICO website states, “Your credit report and FICO Scores evolve frequently.  Because of this, it’s not possible to measure the exact impact of a single factor in how your  FICO Score is calculated without looking at your entire report. Even the levels of importance  shown in the FICO Scores chart above are for the general population and may be different for  different credit profiles.” That’s pretty confusing.
There are other credit scores depending how the scoring model is used and who’s  reporting the information. Those different reporting agencies are Equifax, Experian and Trans  Union, and those three have their own credit score called a Vantage Score.

A Vantage Score  can access someone that has had credit for a short amount of time. The FICO score is the most  referenced credit score and when people are discussing this topic they refer to the FICO Score  and the credit score as the same thing. Regardless of what score is looked at, do you need a  credit score? No, and I teach my clients how to avoid all forms of debt.

My husband, Richard, and I were married in 2011, and within a month of our marriage  we realized that we had $60,000 in debt, $100 in savings and $9 in our checking account.We  were scared, overwhelmed, but seeing those numbers on a spreadsheet was the motivation  we needed to change our relationship with money. That $60,000 was a mixture of student  loans, credit cards and car loans. Richard was stationed at a military base that offered a free  financial planning course, Financial Peace Military. We learned how to create a budget, track  our spending and we paid off all of our debt within two years.

Since November 2013, we have  lived debt free. When we travel, we use debit cards. Be sure to call ahead to hotels or car  rental companies before traveling to confirm how much of a security deposit will be needed.  We have bought our vehicles with cash. The dealership we worked with in California accepted  a personal check.

Regardless if you are in the “Credit is Good” or “Credit is Bad” camp being honest with  our children is necessary when discussing the topic of finances.n this day and age, we talk  with our children about several topics that were considered off limits a few decades ago. If  you can talk with your kids or teens about race, politics, or religion, then consider discussing  personal finances.

Explain why you are making certain purchases and not others. With many  of us shopping online, model how you are selecting purchases with a specific goal.
Americans have on average $35,000 in student loan debt. If you have struggled with paying  off school debt, talk with your children about what you wish you had known before signing up  for those loans.

Learn From Others
In 2019, Chris Hogan released his book “Everyday Millionaires.” The book reviewed the  surveys from over 10,000 individuals with a net worth of a million dollars or more.

95% of  those interviewed saved up for large purchases. 92% of millionaires developed a long-term  plan for their money. 70% of millionaires saved more than 10% of their income during their  working years.

However, one of the most memorable statistics was that 73% of the individuals  in the study had NEVER carried a credit card balance in their lives.

Let that one set in. Being  intentional with your money is a skill that takes practice, but there is no better time than now  to start.

​Colleen teaches her clients how to organize their finances and take control of funding their future goals.
As a former middle school and 4th grade teacher, she specializes in working with teens and their parents showing the young adults how creating a plan for their time and money now will positively impact their futures. She also works with couples that are sick and tired of being broke. Connect with Colleen.