Tag Archives: credit card

Life 101 for the New Millennium: Why and How You Should Build A Good Credit History

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credit history score
Photo by Giovanna Baldini

Although some financial gurus like Dave Ramsey recommend avoiding them altogether, credit cards can help you establish a credit history. You’ll need a good record of credit when it comes time to finance large purchases like a car or home. When I was a college senior, my parents let me get a Discover card. I paid off the debt for every month I had a balance and was never late with payments. Thus, I began my credit history.

Not carrying too much debt, not having too many credit cards, paying your utilities and rent on time, and never being late on credit card payments are some major ways you can build a good credit history. And like I’ve preached before, try to pay off your whole credit card balance each month. Not only will you avoid paying interest on the unpaid balance, but it makes for a good habit of staying within your means.

Your credit score is derived from your credit history (also called a credit report.) It is a numerical representation of the health of your credit at any point in time and also an indicator to prospective lenders of how much of a risk you are as a borrower. Avoid pulling a credit report on yourself too often, and make sure you’re doing so with a reputable online vendor.

The three credit bureaus are Equifax, TransUnion, and Experian and all will have a slightly different score for you. These numbers are fluid and will change over time depending on your spending habits, how you handle your credit, etc. And here’s how to request your credit score from the three bureaus . Here’s how your score is calculated:

35% – Payment history
30% – Amount owed vs. total credit available to you
15% – Length of credit history
10% – New credit
10% – Types of credit used 1

And here are what the score ranges mean: 2
Credit score ranges

If you tend to forget payments, create recurrent reminders in your phone or calendar, or set up automatic payments that draft your checking account. Definitely avoid allowing a bill to become so overdue that it’s sent to collections. Again, like with a lease, if you see that for some reason you will not be able to make a full payment, work with the lender on the best course of action instead of letting it go overdue, which can negatively affect your credit score.

Don’t max out your card, spending up near the limit. 3 Just because you have a high limit doesn’t mean you should take advantage of that regularly or with too many purchases of non-necessities.

Making good financial choices isn’t always easy. But being informed, staying on top of your finances, and guarding your credit history will keep you on the path of financial stability and maintain your good reputation as a borrower (not to mention lowering your stress!)

References: 1Myfico.com 2usleaseoption.com 3regions.com/mygreenguide

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Life 101 for the New Millennium: Demolish Your Debt

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debt reduction, budgeting, interest
Photo by Erwin Zueger

Some people may not think about recent grads when it comes to debt. After all, how many recent students have a house, luxury vehicle, kids, etc. But those graduates who didn’t have the benefit of scholarships or parents who paid their way through college most likely had no other choice than student loans.

The faster you pay off the debt you owe—be it on a car, student loans, etc.—the better. Unless there’s a prepay penalty on the loan, you’ll save in interest when paying it off early. And student loans and/or credit card debt are a great place to start this practice.

First, make sure you have a budget. This way you can make sure you are covering your needs before your wants each month. Live within your means, spending what you have and saving up for anything that costs more than you have the money for. Then list out all your debts: the creditor, the total, the interest rate, and the minimum monthly payment.

The preparation above will help ensure (or identify if) you have some discretionary income to apply toward debt reduction (always pay against the principal when paying more than the minimum payment). You can also pick up additional work on the side, be it freelance or a part-time job in the hours around your full time job. For example, my friend Jason bartends two nights a week.

Pay off the debt with the highest interest first, then on down the list. Obviously, don’t take out mini loans from your bank, do Cash Advance type loans, or go on shopping sprees with your credit card. You don’t want to add to your debt when the goal is to be as debt-free as possible.

You may want to investigate consolidating all your debt into one lower interest loan. This strategy may help reduce the amount of interest you accumulate monthly, providing you more cash to use toward paying off the balance.*

If you have a month where for some reason you will not be able to make the full payment, contact that creditor. Creditors are used to working with their customers and would rather you be proactive in working out an alternate arrangement than get behind on payments. Further, you may have more options if you get in touch before that month’s deadline rather than waiting until the payment is overdue.

If you ever see you cannot make, for instance, your car payments, contact the lender to discuss options. It’s far better to do this than to allow repossession…or in the case of an apartment, eviction. Eviction has many consequences, and just running from the aftermath of that situation will not absolve them.

Though having your debts paid off may seem like an ideal but distant goal, don’t give up. Chip away at that debt. Getting it off your plate can reduce stress, save you money, establish good money management habits, and help raise your credit score.

*“How to Pay Off Debt: Six Steps to Success,” 2014 Regions Bank article

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MOOLAH MONDAYS: 5 Tips to Improve Your Relationship With Your Credit Card

Budgeting & Money, , , , , , , , , , ,
credit card, debt, interest rate, spending
Photo by mangtacio

Mmm, credit cards. For some, just the thought causes a twinkle in the eye and visions of the wondrous things that can be had now without waiting. For others, these two words serve as stressful reminders of the thousands in debt they have along with the high interest rates that ride the coattails of each balance.

While some may rail against credit cards–Dave Ramsey comes to mind–I think about credit cards like most pleasures in life, “Everything in moderation.” A credit card is usually required to put down a deposit on a hotel room and can come in handy when shopping online or establishing a credit history. Here are 5 important tips about choosing and using credit cards.

  1. Points – In a previous post, I heralded the joys of the points you can earn with some credit cards (and am using mine for another international trip this year getting at least a $300 discount on my airfare.) So check out that post if you’re considering signing up for a card that earns you something. But I can’t stress this enough: if you qualify for one of these cards, why not have the card work for you? Be sure when choosing any credit card to check if there’s a yearly fee.
  2. Have only one back up credit card – If you are hanging on to more than one credit card you rarely use, it can affect your credit score negatively. Call to cancel those cards, then cut them up where the numbers can’t be read, and throw them away.
  3. Pay off your credit card balance monthly – I do not like the thought of paying interest on anything. Obviously to do this, you’ll want to spend no more on your card than you can afford to pay off each month. With discipline and a little conscientiousness, it can be done.
  4. Keep a List – Keep a list of all the credit cards in your wallet or purse (and the contact phone numbers for each company) in case it’s ever lost or stolen. In that situation, you’re already stressed enough dealing with the loss of everything else that was in there. This will make cancelling the cards faster and easier.
  5. Loans – And on a related note, avoid taking mini-loans from your bank or cash advance establishments like Advance Financial. These will not earn you points, and interest rates can run high. You also may end up forming a bad habit of using them as a go-to every time something big you want is on sale, when have a large unexpected expense, or when you’d like to take a trip.

In closing, if you are working to pay off debt, I do agree with Dave Ramsey on this point: Pay down the cards or loans you have with the highest interest rate first. Repair your credit score if need be, and work toward best practices when using credit cards.

Can you recommend any specific credit cards you’ve had good experiences with? What advice would you give a college student getting his or her first credit card?

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