A big challenge many felons face after getting out of prison is money management, and in particular establishing good credit.
Most excons are overrun by huge debts, unpaid bills, and a lack of understanding how to manage personal finances. This creates even more road blocks to integrating back into society, and not falling back into criminal activity.
In this country, having good credit equals financial freedom and flexibility. Your horizons open and you are able to get necessaries such as a car, without having to pay `100% cash upfront.
While your main goal should be getting a good paying job, don’t loose sight of the goal to establish good credit. It may take sometime and effort, but will be well worth it for your life in the long run.
What is considered a good credit score?
Essentially a credit score is a number that shows a consumers creditworthiness. This means how likely someone will be to pay off their debts and do this in a timely fashion. A credit score is compiled based on reports from various credit reporting agencies that aggregate data on an individual’s bills, loans, mortgages, credit cards, etc.
A FICO credit score can range from 350-850.
A score of 800-850 is considered excellent.
740-799 and above is very good.
670-739 is good
580-669 is fair
300-579 is very poor
Lenders and credit card companies will look at your credit score to determine whether they should offer you credit or a loan, or to decline your request. The score also impacts the terms of these offers.
People with high credit scores get much better terms for the loan and lower interest rates. On the other hand, people with poor credit usually have to deal with very high interest rates and more strict terms of repayment.
Keep in mind that the difference between a low interest rate and a high one translates into hundreds and even thousands of dollars of savings over time.
You should strive for getting your score into the low 600’s. This a very good starting point where many credit card companies and lenders will be willing to work with you and offer decent terms.
Benefits of good credit
Lets discuss exactly why you want to work on building up good credit and the tangible benefits you will get. If you are serious about working on this goal in your life, read our comprehensive guide on How To Get Good Credit
1. Get a credit card
Having a credit card gives you the freedom to buy things you need right now without having to pay cash for them. Not having a credit card severely limits what you can afford. For many felons this often means having to live without bare necessities, and even not having enough food.
While you still have fair credit and are working up to improve it, you credit card may have a very high interest rate and a low credit line. You have to be very careful to spend only as much as you can pay back the next month. Running up debt on a high interest credit card means complete financial disaster – this debt accumulates very fast and is very hard to pay off.
2. Rent an apartment
Many felons that have jobs discover that they are still unable to get decent housing for themselves and their families. Applying for Section 8 can take years or waiting, while you need a roof over your head today.
So whats the problem? Well, BAD CREDIT is the problem! Most landlords and apartment management companies will pull a prospective tenant’s credit score to determine if they will pay rent on time. When they see someone with a poor credit rating, this is a huge red flag. This means that even if you have a job, the landlord will not have confidence that you will pay your rent in full and on time. A bad credit core combined with a past criminal record is a recipe for getting turned down from even the crappiest apartments.
Once your credit score improves, the problem of finding housing will get a lot easier. While many landlords will still be afraid to rent out to a someone with a felony conviction, other landlords will be willing to give you a chance, when they see that you are financially trustworthy.
3. Purchase a car
One of the biggest obstacles to searching for work is adequate transportation. If you don’t have a car, your job options are extremely limited. So getting your own car, even if its a used one, should be a top priority if you are serious about finding a job.
Since most likely you will not be able to purchase a car for cash, having good credit will allow you to get a car loan. This way, you will be able to get a car much quicker, and will be paying off this loan monthly over time.
Remember, the better your credit score, the better loan terms you will get. Less money to put down, bigger credit line, smaller interest rate. All these things make a huge difference when you are trying to make a big purchase.
4. Get your dental work done
Having bad teeth, missing teeth or tooth ache can be a huge obstacle to getting a job. Your appearance is very important when you go for interviews, and problems with teeth can be very off-putting to prospective employers.
While fixing teeth is very expensive when you have to pay out of pocket, its possible to get a dental or medical loan to help you pay for these expenses. Naturally, a high credit score will help you get this loan.
5. Pay for adult education classes or a degree program
Do you dream of going back to school to finish your education, or learn a new set of skills to get a better job? Many felons really like the idea of going to college, but they have no idea how to afford such a big expense. And its true, education in America is so expensive, that its impossible to afford without taking out student loans.
This is where good credit saves the day. It allows you to qualify for educational loans that otherwise would not be available to you. Getting financial aid from the government is also much easier when you have a good credit rating.
6. Get approved for a higher credit limit
Once your credit score improves, you will be able to get higher credit limits on your credit cards and loans. For example, if initially, you only were able to get a card with a $500 credit limit, now you may qualify for $2,000. If you pay everything on time and your credit rating continues to improve, your credit limit will continue to go up.
7. Qualify for a better auto insurance rate
One place where poor credit hurts you is car insurance premiums. They are much higher for people with poor credit, as they are seen as a much higher risk, because they tend to file more insurance claims.
8. Get a cell phone contract
It turns out that many cell phone providers will not sign a contract with you if you have bad credit. This means that you are stuck with pay-as-you-go plans which are more expensive in the long run and have more costly phones. Once you establish decent credit you will be able to sign up for a plan with one of the big providers such as T-Mobile or Verizon.
9. Improve your chances of getting a job
Some employers like to ask for a credit score as part of the application process. Needless to say that a low score combined with a criminal history leads to a rejection. However, even if the employer does not ask for your credit score, but you managed to clean up your debt and improve it, this can be an ideal bragging point during the interview!
A high credit score will show that you have become a responsible person and that you take your commitments seriously. This will actually greatly boost your chances of landing that job.
10. Practice smart money management
One of the biggest benefits of fixing your credit history and improving your credit rating is that you learn how to manage your money. Many felons struggle in this department, especially if the past crimes are related to financial fraud, theft, lying, etc.
Learning how to save money, how to allocate finances toward debt repayment, how to pay off debts on time, etc. are all invaluable life skills.