Tag Archives: loans

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

Advice, Budgeting & Money, , , , , , , , , , , , , , , , , ,
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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MOOLAH MONDAYS: Getting Ahead of Yourself (in this case, it’s a good thing!)

Budgeting & Money, , , , , , , , , , , , , , , , , ,
money, expenses, income
Photo by 3Peaker

Kind of a side-note blog post here…if you really want to take full advantage of this system, get 1 month ahead. In other words, everything you earn in November is your money for use in December. You may need to have a really lean month or two to accomplish this, but it is SO worth it. Here’s why:

  • Self loans – Let’s say you just found out that the leather jacket you’ve always wanted just went on sale big time. You won’t have finished saving for it until next month, but you don’t want to miss out on the $50 you can save now. Knowing you’ve got a little cushion since you’re using this handy dandy system, you go ahead and buy the jacket on your credit card (we’ll talk more about these later) at a great price today, logging the cost on your Tracking Budget. Then you can just “pay yourself back” (absolve that negative) next month. This cushion can also serve you well for unexpected circumstances (like that $800 of repair work you had to have on your car or getting laid off next week) if you don’t have a rainy day fund to cover such surprises. NOTE: Don’t abuse the cushion. This takes self control. You can do it. If you’re not so good at that, practice, practice!
  • Bills – Oh shoot, your cell phone bill is here! But, no problem. You already set aside that money and can pay it right away.
  • Bounced checks – …are over! I can’t remember bouncing a check since I was a freshman in college—and that was due to losing my checkbook. Since you’ve got a month’s worth of pay in your checking account at the beginning of the next month, you don’t need to sweat each expense, check your balance online every other day, or worry if your checkbook total is a little short of the actual balance.
  • Ready for block payments – Let’s say you’ve got a $500 car insurance payment due twice a year. Since you’ve been saving a monthly amount for this in your checking account, you’re ready to write the check (or even better yet, put it on your credit card, and get the points!) right away with no scraping up the dough in a mad panic!

In the next post, we’ll look at how to use the tools we discussed in the first post. If you live a month or more ahead, what’s your opinion of it? What benefits can you add to those above, or why would you recommend a friend do this?

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