Whether you’re 15 or 22, the best time to start building credit is now. Although your parents may still be supporting you, soon the time will come for you to begin paying for things on your own, and in today’s society, it’s important to establish your credit. Good credit can help when buying a car or even renting a place to live. You may be thinking it’s tough for someone your age to begin building a credit score, but we’re here to provide some tips on how you can get started.
Open a Checking or Savings Account:
Although this fact is often overlooked, lenders see checking and savings accounts as signs of stability. They want to know you have several years of experience managing your own money. An i[check] checking account from Georgia’s Own is free with no annual fees or minimum deposits. Always keep an eye on your account and never overdraft or bounce a check as it will show up when lenders are reviewing your credit report.
Get a Credit Card:
If already have some credit history and you’re able to qualify for a new credit card, this is a great way to build your credit. If you’re unable to open an unsecured credit card (a “standard” type of credit card), you can open a secured credit card. A secured card is a line of credit that requires you to put up collateral (a borrower’s pledge of specific property to a lender, to secure repayment of a loan) and usually has a smaller credit limit. Another option is to apply for a student credit card. They often have low limits and low credit requirements, but be careful to use the card sparingly and always pay off the balance as soon as you can – never pay interest!
Guidelines For Smart Credit Card Use:
- Keep credit card debt low. Use your card regularly, but don’t spend money you don’t have.
- Stay well under your credit limit. You’ll be scored favorably if you keep below 30% of your total credit limit. To raise your limit, consider a no-fee credit card.
- Don’t take out cash advances.
- Keep accounts open for as long as possible, especially if doing so is cost-free. This raises your average account age and your total credit limit.
- Don’t open too many new accounts all at once. This lowers your average account age.
Apply for an Installment Loan:
Installment loans are loans that are repaid with a fixed number of equal payments, generally paid off monthly. A student loan is one example of an installment loan and is a great way to begin because it can be acquired easily and carries low interest rates. Another good thing about a student loan is that you don’t have to start paying it off until six months after your graduation, but the loan won’t appear on your credit score until you begin paying it off.
Monitor your Credit Report:
All credit reports are maintained by three major bureaus: Equifax, Experian and Trans Union. If lenders are saying anything about you, you are entitled to a free look at your reports. Even if you have done nothing to establish credit, you may already have a credit report. Identity theft is one way that this could happen and it could damage your score if the thief accumulated large amounts of debt in your name. You will want to clear this up before you begin establishing your credit.
Manage your Money Wisely:
Once you have opened an account or obtained a credit card, it is imperative to maintain good money management. Paying all of your bills on time is very important and applies to credit cards, loans, mortgages, cell phone bills, etc. Once you receive a bill, put a reminder in your smartphone or on your calendar about the due date, or better yet, pay it off immediately. You can also set up automatic payments which makes it easy on you so that you don’t have to worry about due dates. Automatic payments are recurring payments that will be applied to your account each month you have a minimum payment due. Also, as mentioned previously, keep an eye on your account so that you don’t overdraft or bounce a check. Most institutions, including Georgia’s Own, have free online and mobile banking which give you 24/7 access to your accounts.
Your Credit—or FICO—Score Is Calculated by 5 Factors
- Payment History: Your payment history accounts for 35% of your credit score. The goal is to establish a record of full, on-time payments. Recent history is given more weight.
- Amounts Owed: Your debts account for 30% of your credit score. Credit bureaus look at both your total debt and your debt-to-credit-limit ratio which is the amount of credit you are using compared to your credit limit. Not all debts are bad, but loads of credit card debt is definitely frowned upon.
- Length of Credit History: How much history you’ve already established accounts for 15% of your credit score. This can make it difficult for folks just starting out.
- New Credit: Recent credit acquisitions account for 10% of your credit score. It looks at how many new accounts you have applied for recently and when the last time you opened a new account was. The score assumes that if you’ve opened several new accounts recently, you could be a greater credit risk; people tend to open new accounts when they are experiencing cash flow problems or planning to take on lots of new debt. New accounts are handled with suspicion.
- Types of Credit Used: The types of credit utilized account for 10% of your credit score. It’s helpful to diversify.
How often do we hear the dreaded “D” word…Debt? It seems like every day the word debt comes up. Whether it’s you, your friends or family, or the nation as a whole, Americans regularly spend more than they earn. It may sound impossible to stay clear or conquer debt, but some of the first steps toward a debt-free life are some of the easiest.
Debt is an amount owed to a person or organization for funds borrowed – pretty easy, right? Debt is usually talked about negatively, but there is such a thing as good debt. Good debt typically comes in the form of an investment that creates value. Student loans, home mortgages, and real-estate loans are some examples that could be used as good debt. Now, if you don’t pay off your loans and mortgages on time, then they can become bad debt. Most bad debts come from credit cards used to buy disposable items or durable goods that lose value as soon as they are bought (i.e. clothing).
People accumulate debt in different ways and for different reasons. Credit cards are one of the most expensive and common reasons. Credit cards are great for establishing good credit, plus they are good to have in case you are in an emergency situation and need money fast. When you don’t use them correctly or don’t pay them off, debt starts to amass. Getting a credit card has become so easy today that it is tempting to snag one from your favorite department store, but when you use your card and don’t pay off your balance immediately, you are acquiring debt.
So now that you have racked up a seemingly insurmountable amount of credit card debt, there are easy steps you can take to start climbing your way out. If you have multiple cards, you should try to get rid of all but one or two. The ones you are left with should only be used for emergency situations and typically shouldn’t be used daily. Look for a low-interest card to take the place of you current card, because credit card companies are all fighting for your business and they often offer special rates for balance transfers from other cards. Also, instead of only paying the minimum each month, try paying more each month. Every little bit helps!
Student loans are another common reason for debt among young people. College costs, as well as graduate school costs, have steadily risen over the years. According to a recent report from the Project on Student Debt*, college seniors who graduated last year owed an average of $24,000 in student loan debt. WOW!! Though student loans can be considered good debt, not paying them off, as you can see, could potentially put you thousands of dollars in the hole once you enter the workplace. You can avoid debt from student loans through a variety of financial aid options including, scholarships and grants. Companies and organizations love to give away scholarships on a regular basis. (Check here for info on Georgia’s Own 2011 Scholarship) Make sure you browse the net for all scholarships which you are qualified and take the time to make your application stand out above the rest.
If you already missed the boat on scholarships and have student loans to pay back, you have to start paying back your debt. You can reduce your debt load by consolidating or refinancing your loans. By consolidating you student loans, you are reducing interest rates. Interest rates are much lower now than when you probably first got your loan.
Auto loans are another way the debt can add up fast. Car companies everywhere are offering deals that seem really awesome on the outside, but underneath they are really debt traps. Steer clear of auto loan debt by putting more cash down on your vehicle when you buy; your goal should be to pay with cash. You should also look for short-term financing options so that the loan will be paid off faster. You may have larger payments, but you actually will save money down the line. If you have a high interest rate, you can usually refinance and get lower rate.
A simple solution to begin reducing your debt overall is to set up automatic payments for your bills. I know how easy it can be to push away medical bills, student loans and auto loans every month. At the end of the month, instead of deciding between paying down your debt or making a run to the mall with your credit card in hand, that decision will be much easier because your payment has already been deducted. Debt can be scary and it may be a tough journey, but it will be worthwhile when you are able to say that you are debt free.
Financial Aid Info:
So I wanted to let everyone know some exciting news from Georgia’s Own. GOCU and i[x] are proud to announce your newest benefit of membership: BALANCE Financial Fitness Program.
BALANCE is a free and confidential money management tool to help you stay on the path to financial freedom. Whether you’re interested in developing an easy spending and savings plan, getting out of debt, taking a look at your credit report, or buying a home, i[x] and BALANCE can help. They have chapters for you to look over and even provide a quiz to allow you to test your knowledge of the subject.
BALANCE also has counselors available throughout the day to answer any questions you might have. To use the program, visit BALANCEpro.net or call 888-456-2227 to begin taking advantage of this FREE resource!
We talk a lot about what to do if you are in debt or are trying to climb out of the hole, but I wanted to take it all back to the basics of personal finance. Think about grandparents and older generations. Are most of them in good financial shape? The answer for me is, yes. One large reason that they are in better financial standing than most in our generation is likely due to the fact that they were much more frugal than we are. They spent money on only the important things (think necessities, not keeping up with the Jones). The biggest thing that they did to help their financial health was to live within their means. They knew that they could only buy the things they needed and only what they could afford. So let us take a page from them and get back to the basics: work hard, save money and avoid debt as best you can. And what debt you do have, be responsible and work towards paying it off.
Debt. It is a dirty little word! Some of you may be in debt and the rest may be scared of it. Don’t fear however, I have a few tips that will help you dump that debt:
- Plan, Stan-Have a spending plan so that you can spend your money most effectively and in a way that ensures financial success.
- Save, Save, Save- The easiest way to avoid debt is to have some money set aside for those emergency situations. Have a small amount deducted from each paycheck into a savings account. A good savings goal is 6 months to a years worth of expenses.
- Automatic Bill Payments- If you set up automatic bill payments, you will be sure to avoid any late fees, which could hurt your credit in the future. Check out Georgia’s Own Bill Pay system here.
- Don’t be Fooled- Debt settlement companies will try to come in and set up great plans for you to pay back a percentage of your debt. A good rule of thumb is: If it’s too good to be true, it is.
- Do not ignore your financial problems, it will only make it worse- If you feel you have done everything you can, don’t give up; contact a credit advisor who can steer you in the right direction toward free classes and workshops on setting a budget, managing your money…and much more.