It's no secret that ob-gyns have earning potential well above that of the average worker. Still, many outside of the upper-earning brackets don't understand that high raw income doesn't guarantee financial wellbeing.
Regardless of your salary, the most important element in monetary stability is proper management. But how does someone with the overwhelming work schedule of an ob-gyn find time to research best financial practices?
That's where ACOG Rounds’ new financial health series comes in. Brought to you by the ACOG Member Insurance Program, this series offers solid prescriptions designed to help you better manage your income.
The first patient we'll diagnose? Credit.
Your credit score affects more elements of your adult life than you realize: apartment rental opportunities, auto loan rates, banking account eligibility, insurance premiums, mortgage applications, and the list goes on.1
But before taking steps to improve your credit, it's important to first know how your credit number is calculated. Here is how the FICO score, the most widely used credit standard, breaks it down:2
- 35%—Payment History: The biggest factor in your credit score is how often you've paid your previous credit account bills on time.
- 30%—Amounts Owed: The percentage of unpaid credit you currently have is used to determine your likelihood of missing future payments.
- 15%—Length of Credit History: The longer your credit history, the more favorable your score.
- 10%—Credit Mix in Use: Your credit mix includes number of credit cards, mortgage loans, retail accounts, installment loans, and bank accounts.
- 10%—New Credit: The more credit accounts you open within a small time frame, the greater your risk factor is determined to be.
While other credit score models don't follow this formula exactly, they're similar enough for you to safely base your credit improvement strategies on what FICO deems important.
But what can you do to improve your credit score?
Here are five prescriptions:
Prescription 1: Check your own credit report
There are three nationwide credit reporting companies: Equifax, Experian, and TransUnion. Thanks to the Fair and Accurate Credit Transactions Act, every American has the legal right to receive a free credit report from each of these companies once per year. Requests can be submitted via annualcreditreport.com.
Upon receiving your information, review it carefully to determine where you stand. If you notice a discrepancy, you have the legal right to dispute it. Be an advocate for your own credit—you're the only one who ever will.
Prescription 2: Only use a credit card to pay for 30% or less of your monthly limit
While good-intentioned people in your life may advise against even obtaining a credit card for anything other than a last resort, having one or two open accounts is an easy way to build a solid credit history that lenders find appealing. An important tip many people overlook, though, is to not exceed 30% of your card's limit each month (some experts even put that number as low as 10%). The more available credit you use, the warier creditors will become of your spending habits.
Prescription 3: Only close a credit card if absolutely necessary3
Because of how credit scores are calculated, cancelling a card will mathematically drop the amount of available credit you have to your name. Since context and nuance are eschewed in favor of pure numbers within credit bureaus, any reduction in your personal credit can count against you.
Prescription 4: Pay your bills on time
This may seem too obvious to be worth mentioning, but it's not. Timely bill payments are the biggest contributor to good credit scores, and forgetting to pay a bill when it’s due just once can have a negative impact. One of the easiest ways to avoid forgetting to pay a bill is by setting up recurring online auto-payments through your bank.
Prescription 5: Pay off all debts as soon as possible4
The student loan debt most ob-gyns have upon graduation is astronomical. If possible, you should pay more than the lowest monthly repayment amount available. The faster you eliminate your debt, the less interest you will pay and the better your credit will become. This also applies to auto loans, mortgages, and personal loans.
The world of credit may seem complicated, but by implementing these tips, you can be confident you're heading toward a successful financial future.
Look out for the next article in our financial health series—coming in the May edition of ACOG Rounds!
1"How Credit Impacts Your Day-to-Day Life." Credit.com. 17 Oct. 2013. Web. 12 February 2016.
2"What’s in My FICO Scores." MyFICO. Web. 12 February 2016.
3Arnold, Curtis. "11 Ways To Raise Your Credit Score, Fast." Forbes. 2 May 2014. Web. 12 February 2016.
4"How to Repair My Credit and Improve My FICO Scores." MyFICO. Web. 12 February 2016.
The purpose of this article is to provide information, rather than advice or opinion. It is accurate to the best of the author’s knowledge as of the publication date. Accordingly, this article should not be viewed as a substitute for the guidance and recommendations of a retained professional. Any references to external websites are provided solely for convenience. The ACOG Member Insurance Program disclaims any responsibility with respect to such websites.