Being financially responsible, accountable is military requirement

  • Published
  • By Tracie Faulk
  • Community Readiness Consultant
MALMSTROM AIR FORCE BASE, Mont. --  As a military member you are told you must be "financially responsible." Although there are many interpretations of the term "financially responsible," there is a commonly held acceptable definition of this standard. To be financially responsible means that you are accountable for your current and future financial well-being and that you strive to make the best possible financial decisions. Financial decisions you make today can significantly impact your future. Not only do they affect your immediate financial well being, they can also affect your credit score, which can negatively impact you for your lifetime.

Our individual credit score, or credit reputation, dictates whether or not we are eligible for a loan and at what cost, or interest rate. A credit score is a complex statistical formula which determines whether or not a borrower is trustworthy to repay the amount back or not.

There are five critical factors to monitor:

1) An individual's payment history is approximately 35 percent of a credit score. Do you make payments on time? Have you ever been late? How often? Making payments on time will help to establish positive credit.

2) The amount of money a person owes is 30 percent of the score. How many of your accounts have balances? Are you "maxed out" for each account? Never have a balance of more than 30 percent of the credit limit on the credit card or your credit score may significantly drop.

3) The next factor to be aware of is the length of credit history, which makes up 15 percent of the credit score. How long have you had the accounts and how often do you use them? Closing credit cards that you've had for years may drop your credit score.

4) Credit variety makes up around 10 percent of your score. Credit reporting agencies want to see a variety, a good mixture of credit. If your only form of credit is in personal signature loans or credit cards your credit score will be lower than someone with a variety of credit.

5) Another 10 percent factor is taking on more debt. How many new accounts do you have? How often are you applying for credit? Do you have too much debt? Since having too much on credit can adversely affect your credit score start paying off the debt you have acquired.

Being financially aware is essential to financial responsibility. Being aware of how much you are truly paying for items is important. Did you know that your interest rate is based on your credit score? The better the score the better the rate! Before applying for a credit card or a loan, make sure you read the fine print. Make sure you understand the details of the loan. What is the total amount you will pay, with interest, and then ask yourself, "Is it worth it? Or is there a smarter way to go about this purchase?"

Financial responsibility is also about financial planning. It is having a road map of where you are and where you want to be. It's about establishing financial priorities. The benefits of planning and developing financial goals will enable you to really take control of where your money is going. When establishing priorities examine what is a "necessity" or "want." Often a purchase we believe we must have can truly wait.

It is better to pay cash for items than to put them on a credit card or financing through a financial institute. For example, if you were to purchase a flat screen television with cash it might cost you around $750, but if you didn't have the cash and borrowed money, or took out a loan, how much would it cost?
 
Depending on your current credit score, interest rates and length of the loan, it could end up costing you an amount significantly greater than the sticker price. Although there are some benefits to borrowing or purchasing items on a credit card, you will always pay less with cash.

Nowadays so much is available to us that it can be common to inadvertently develop impulsive financial spending habits. To be financially responsible you need to set financial goals and be accountable for your future financial success. You need to be aware of your credit score and the financial impact of your decisions. Remember your credit history is a reflection of your choices, a reflection that can last a lifetime.

If you have questions about credit, debt ratio, budgeting retirement planning or other financial concerns, you can consult with a certified financial counselor at the Airman and Family Readiness Center. Call 731-4900 for more information.