Keeping your financial house in order pays off

When the Senate passed a $700 billion Wall Street bailout Wednesday night, the 74 of 99 Senators voting yes did so in the hope that the bailout will keep credit flowing in America.

The idea is for the government to use taxpayer dollars to buy bad assets — mostly mortgage related — from banks. Once those assets are cleared from the banks’ balance sheets, the thinking by those senators voting yes is banks will reverse the trend of tightening credit in the current economic downturn.

If the bailout passes a vote in the House of Representatives and is signed by President George Bush, those in favor think the bailout will keep banks lending to each other. The trickle-down effect, they say, is credit will continue to be extended to businesses and individuals, which in turn will keep people employed and spending money so the economy will continue to churn.

Whether you agree America is in a dire financial crisis and that spending taxpayer dollars to bail out Wall Street is the best way to help the economy, it is important that we realize how we got here — greed on Wall Street, irresponsibility on Main Street, a lack of accountability on Pennsylvania Avenue and salaries of the middle and lower class not keeping pace.

This is not the first time we have had to wade through a stalling economy, and it likely won’t be the last. How banks and individuals make it through such times largely depends on how they manage their finances.

The stronger a financial house, the better shot you have of riding out a storm. Examples of this in the current storm are healthy banks swallowing up bankrupt banks and some individuals locking in on great mortgage rates while record numbers are facing foreclosure.

The strength of an individual’s financial house centers on the credit score, which ranges from a low of 300 to a high of 850. These scores are not indicative of how much wealth a person has, but rather how responsible that person is with the money they have.

A good credit score is anything above 700 with the median score in America being 723. South Carolina and North Carolina rank in the bottom eight with average scores of 665 and 667.

People with excellent credit scores — 760 to 850 — qualify for the best loan rates.

They pay less fees and interest. They also are more likely than those with lower credit scores to be extended credit during a national credit crunch such as one facing us now.

Consider the following example at myfico.com:

On a 30-year fixed mortgage of $216,000 at Thursday’s rates, a person with a credit score of 760 or above will pay $227 less per month than a person with a credit score of 620 to 639. That’s a savings of $2,724 a year and $81,720 over the life of the loan.

A lower interest rate on a mortgage isn’t the only way excellent credit can save you money. From credit cards to auto loans to insurance rates and even utility bills, being responsible and maintaining a good credit score can save big money.

Bottom line: Whether it’s a house a car or a shirt, if we as individuals don’t purchase more than we can afford, we’ll be able to maintain or improve our credit standing. And America will have a better chance of avoiding big bailouts.