Strive For Excellent But Not 'Perfect' Credit Score

Dear Liz: I've read many of your columns about credit scoring but can’t get my arms around one thing. My wife and I have been married 26 years, have had probably 30 or 40 different credit accounts in that time, including many cars, home loans, credit cards of all sorts and have never missed a payment or reneged on a loan. Yet, our scores are still only in the 80th percentile. Is there anyone out there that has a perfect score or at least comes close?

Answer: If your scores are in the 80th percentile, or in the high 700s on FICO’s 300 to 850 scale, that means they’re excellent. Your risk of default is less than two percent, so you’ll get lenders’ best rates and terms.

A few folks do get close to a “perfect” score every year, but even those that do typically don’t keep it for long. Credit information and thus credit scores are constantly changing. So stop obsessing and enjoy your excellent credit.

Dear Liz: I've been following the discussion about the cost of fee-only financial planners in your column with great interest. The opening salvo was a person who was shocked at the cost of a consultation with a fee-only financial planner. Subsequent replies from a financial planner and others emphasized that this is money well spent and that planners earn their money. I think this misses the point. I have no doubt that good planners are very valuable and earn every dollar they make. The point is that for most normal, middle-class people, suggesting they spend $2,500 on a financial planner is like telling them they should invest in the Vanguard Admiral fund, which has a $50,000 minimum. It doesn't matter how good the advice is, it just isn't going to happen. There are lots of people who try to do the things you and others suggest: reduce debt, save as much as possible in tax-advantaged accounts, use low-fee and index mutual funds, diversify. We have spent years scraping together retirement savings. And some of us would like an objective outsider to let us know if we are on track. But I can't spend nearly five percent of my annual salary on it. In the meantime, I'll muddle along and hope that in five years, when I'm 50, I'll be able to justify that expense. I hope you will consider a future column on a more detailed discussion of alternatives for the non-wealthy.

Answer: Some discount brokerages and mutual funds offer portfolio reviews at low or no cost; check with yours. The online site FinancialEngines.com also can review your retirement plan and investments for about $40 a quarter.

But there aren’t really any cheap substitutes for true, comprehensive, objective financial planning with a fee-only planner. And such reviews are crucially important for most folks before they retire, since the wrong move at that time in their lives can really doom their financial plans.

As far as not being able to afford it, you may want to review your spending over the past several years. You may well discover you’ve spent more than $2,500 on something: a vacation, a home improvement or repair, the down payment on a car. So it’s really not that you can’t spend the money; you’re just choosing to spend it on something else. If you save $500 a year for the next five years, you should be able to pay for your financial plan in cash.

Dear Liz: Neither fee-only planners or commission planners will stay in business long if they don't put their clients’ interests first. There are unethical people in either camp. The movement to fees that started in the 1980s is not fueled by people willing to work for less, but by planners that know they will make more in a relationship with a one percent per year fee than if they collect four percent in upfront commissions.

Answer: Actually, the fee-only model was largely started by planners who were uncomfortable with the commission model and the pressure put on them to sell products that might not be the best fit for their clients. Some of the fee-only pioneers went through some lean times as they tried to convince people that paying an upfront fee was a better idea.

Not everybody wants to pay a fee, however, so there still is plenty of room for the commission-based model. The ethical planner will disclose exactly how much he or she stands to gain if a client purchases an investment that involves commissions.

# # #

© 2008, No More Red Inc. Liz Pulliam Weston is author of the new book “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” She regrets that she cannot respond personally to inquiries, but questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or use the “Contact Liz” form at her website, www.lizweston.com.

« click here for more Liz Pulliam Weston