Steps to Financial Freedom: Know the Score

Carolyn Bird and Molly C. Herndon

Last week, we discussed the first three steps PFMs can take with service members to get their finances on track: 1. Assess the situation; 2. Find the Motivation; and 3. Recruit Your Team. We also linked to free online tools that are useful in managing personal finances. This week, we’ll discuss credit scores and how you can guide your clients to improve their credit score..

Step 4: Know the Score
Having service members identify their credit score is a vital step on the path to financial freedom. It is especially important for service members to know their credit scores well in advance of making a major purchase; such as, buying a home or car. Helping service members understand how their everyday decisions affect their credit score empowers them to build stronger credit scores. Credit scores are comprised of many factors. By asking a service member the following questions, PFMPs can assist service members in understanding how their actions may affect their FICO score:

1. Payment history-35%. Are bills late and how often?
2. Amounts owed-30%. Are you maxed out? How many accounts have balances?
3. Length of credit history-15%. How long have credit accounts been opened?
4. New Credit-10%. Are you opening accounts frequently? How many new accounts do you have?
5. Credit types-10%. Is there a good mix of credit (credit cards, mortgages, or personal loans)?

As a financial educator at your installation you can assist service members in receiving their FICO score at no charge. The FINRA Investor Education Foundation provides special access for PFMPs to allow service members and their spouses an annual free FICO score. Click here to learn more about this FINRA-supported program. Access to the free FICO score site is arranged through your service branch’s Headquarters PFMP.

If your client discovers a low credit score, suggest the myriad of ways available to raise the score before making big purchases. Low credit scores mean higher interest rates which translate into larger monthly payments. Once service members understand this relationship, they will understand that raising the score quickly is in their best interest.

Service members with a strong credit score may want to move forward with their purchase. Lets say the service member in your office is thinking of purchasing a car. There are several items to consider, in addition to credit rating, that you may want to share. The service member will need to decide what type of vehicle is to be purchased and whether it will be new or used. A review of the service members finances will either support the initial choice or may suggest a change in approach. Together, tally up the monthly expenses to determine the amount of money that is available each month for a car payment and car related expenses, including insurance, gas and maintenance. Refer the service member to websites such as and, and to the credit union to research car prices before visiting auto dealerships. For help determining the best options for car insurance, click here. Many insurance companies offer military discounts and the Federal Citizen Information Center provides 9 tips to lower car insurance costs. You may also suggest your client refers to to find out all the facts on their desired car before making a purchase. Fuel economy and safety features should be considered before making such a large purchase.

Besides a car purchase, when else do clients typically come to your office seeking a credit score report?

Steps to Financial Freedom

Contribution by Molly Herndon and Carolyn Bird

Digging out of a mountain of debt can seem like an impossible task, and many resist asking for help. Service members may feel anxious about their options or be unaware of the wide range of services provided to them on base and, increasingly, online. As a PFM you may ask yourself– how do I help a service member find the motivation to stick with a financial management plan? Over the next few weeks, we will be going back to the basics by outlining steps and strategies you can use to help your clients who are looking for financial guidance to get on track.

Step 1: Assess the Situation
The first step is to assist the service member in getting the finances under control by assessing the current financial situation. The service member, and you, must know what you’re up against before you can create a plan to get out of the cycle of debt. Using a net worth calculator

Depending on the specific circumstance, you may recommend your client consider consumer credit counseling, debt consolidation, refinancing or transferring balances to get a handle on existing debt. Each of these strategies comes with advantages and disadvantages. It is important that the client be aware of and ask the lender for an explanation of any increase in the number of payments and interest rates or fees. A clear explanation of costs or extended periods of indebtedness will help the client to evaluate whether the plan is in their best financial interest. Credit repair agencies often promise to remove negative credit information for a fee. Be sure your clients know that the only legal method of improving a credit score is through a history of on-time payments or the removal of false negative information. Steering clients away from credit repair agencies is good practice, saving your clients valuable time and hard earned money.

These initial meetings may be a good time to suggest creating a monthly budget tracker. Tracking every penny that comes in and goes out is the only effective measure toward changing spending habits. Providing clients with an easy-to-use worksheet, like this one, may help clients get started with this new habit.

Step 2: Find the Motivation
What’s really important is what happens after the service member leaves your office. One way to motivate might be to show just how much the debt truly costs. Using the credit card calculator on, I experimented with a balance of $3,000 at an interest rate of 18 percent and payments of $75 a month. Guess what? This debt costs $509 a year! Before you run the calculator, ask the service member about favorite hobbies or something he or she would like to buy. Run numbers on the calculator and show the service member just how much the debt at minimum payments is costing them each year. Ask if they wouldn’t rather use that $509 toward that hobby or purchase.

Step 3: Recruit Your Team!
While PFMs are part of the service member’s team for financial fitness, the most important team member is the service member’s spouse. Discuss with the service member how he will discuss this with his spouse to get her motivated too. Ask about the spouse’s favorite things and help the service member devise an approach that rewards both of them for working together toward a financial goal.

These are just the initial steps in working toward financial freedom. Later we will discuss saving, investing, and raising financially fit kids. There are many approaches to debt solution. What strategies have you found works well in helping service members turn their financial situations around?