The Benefits of Having a Credit Card in College

Most people will advise you to refrain from applying and/or using a credit until after you graduate from college. The reason why: credit card companies target young college students. These companies understand that you are still at an age where your parents will foot the bill if necessary and most importantly – they want to reap the benefits of the long credit life you have ahead of you. Fear not. You can use this to your advantage and here’s how:

Rental applications
Your personal dorm room is the first step towards your independence as an adult.  At some point, you will want to move off campus and rent an apartment with your friends or rent an apartment on your own. Either way, the landlord will perform a credit check. Having an extensive and well maintained credit history will prove to beneficial as credit card companies will view you as a high-quality candidate.

The longer the relationship, the better
The earlier you begin a positive relationship with a credit lender, the better it will look on your credit report once you graduate and begin your transition into adulthood. A proven track record of good credit will assist you with obtaining a higher credit limit or switch to a card with different/better benefits.

If you do choose to apply for a credit card while you’re in college, it is highly recommended that you either use it for small purchases that can quickly and easily be paid back or just use it in cases of emergency such as:

  • Unexpected dental or medical expenses
  • Emergency flights, bus, or train rides home
  • Emergency car rentals

It will be tempting to use this credit card for for items that do not necessarily count as emergencies. Practice self restraint and be sure to track your spending.

The benefits of having a credit card in college are abundant, but accountability and self-awareness need to be practiced regularly. Know your limits, spending habits, and make sure you are responsible enough to maintain a good credit history.

Credit Report Myths Debunked

The realm of credit and credit scores can be confusing to many. Financial literacy is hard to come by and for the most part, difficult to understand. It is important that we all perceive the significance of  what hurts and helps our creditworthiness. Here are a few of the most common credit myths debunked:

Myth #1: Checking your credit is bad for your credit score
Let’s be clear, checking  your own credit has no impact on your credit score. However, applying for a loan will typically have some effect. You should be checking your credit score regularly. Should you happen to see a significant dip in your score knowing you did not recently apply for credit, then there may be some foul play at hand. Identity theft is real and it is imperative that you routinely check the status of your credit.

Myth #2: Marital status is reflected on credit reports
Research shows that at least 44% of consumers have no knowledge of the  Equal Credit Opportunity Act (ECOA) – regulations that forbid a creditor’s scoring system to use certain characteristics as factors. These characteristics include:

  • Marital status
  • Race
  • Gender
  • National origin
  • Religion

Although marital status is not reflected on your credit report, you must remember that both the credit scores of you and your spouse are taken into account when making joint purchases or applying for loans together.

Myth #3: Late payments on utility bills are reflected on credit reports
Truth be told, most utility companies opt to only report late payments or payments that have gone to collections, while other companies report both on-time and late payments. Do your best to make on-time payments and pay off any outstanding bills to avoid the damaging effects those may have on your credit score.
The simple truth

You are in control of your credit score. Do your research, do your best to make on-time payments, and use a budget to ensure you are keeping track of your finances to avoid overspending.

Does Refinancing Affect Your Credit Score?

Refinancing is the act of paying off a current loan by taking out a new one. You might choose to refinance if you think it’ll help you get a lower monthly rate, or else pay less interest in the long term. Refinancing can be a useful tool for anyone paying off a long-term loan, such as a home, car, or student loan, especially as your financial circumstances change and you find you are able to afford to pay more or less per month. But does refinancing affect your credit score? And if so, does it improve it, or hurt it?

The effect of hard inquiries

Applying for refinance loans, as with applying for any loans, involves creditors running your credit report, creating new “hard inquiries.” These inquiries typically lower your credit score by a few points. Although the effect of one inquiry is negligible, the refinancing process usually leads to several such inquiries.

If you want to minimize the harm that these hard inquiries do to your credit score, there are steps you can take.

Be sure to get all your applications in during a short time period: fourteen to forty-five days. Additionally, keep your inquiries consistent in terms of your requested loan and what kind of companies you are applying to. Some credit score models will consider all inquiries made during a short period of time to be just one inquiry, especially if all the requests seem to be similar. It’s better to apply for twelve credit cards over the course of a month than to apply for six over the course of a year.

The effect of closing accounts

Refinancing involves closing an old account (the old loan, that you are paying off through the refinancing process), and opening a new account (the new loan, which you are taking out in lieu of the old one). Closing your account will not affect your credit score immediately. Since the old account is immediately replaced with a new one, the amount of money made available to you will not change, meaning that your credit will not be jeopardized by your spending ratio.
However, in the long run, it can have an effect because it will likely lower your mean account age. Successfully holding loans for multiple years, while paying regularly, looks a lot more impressive on a credit report than paying money to a loan that you have only had out for a short while. This change will not be immediately noticeable, because closed, paid-off accounts remain in your credit for ten years after being closed. For those ten years you will have the benefits of an old account being factored into your credit. After that time, however, the old account will go away, and your credit will likely drop as a result.

On the plus side

That said, if refinancing a loan looks like a good decision, then it probably is. While your credit score will likely drop, the damage will be slight and clear up over time, especially if you take the proper steps. Additionally, getting a good deal on a loan can help your credit if it puts you in a position where the ratio of your monthly pay to the amount of money you are paying off in loans is good.

The takeaway

It’s never a bad idea to think about your credit and how your actions might affect it. That said, there are other important factors that weigh on your finances, and one of those factors is how much money you are paying in loans. If refinancing is going to help you save money, or if it will make it easier for you to pay off those loans, then it is a worthwhile choice to make.

Strategies for Strengthening Your Business Credit Score

You probably already know that a good personal credit score is an important thing for a person to have. Whether taking out a loan or renting an apartment, more things are possible if you have good credit on your side. But if you are an entrepreneur, it is equally important to have good business credit, independent from your personal credit score.

Why do you need business credit?

If you started your own business, you most likely got it off the ground with your own money. Why, then, should you separate your business and personal finances?

First, it’s more secure. If your business fails, you don’t want that failure to damage your personal credits. And if your business is sued, you don’t want to risk losing your personal assets in court.

Second, having business expresses separate makes it easier for you to make the appropriate tax deductions.

Third, a business can access more credit than a person can: ten to a hundred times more. This is useful for two reasons. First, businesses often need that higher ceiling, because they must work with larger sums of money than the average person. Second, even if your business does not require such sums, more wiggle room is better. Experts recommend that companies try to keep their credit utilization ratio under 30% of the credit made available to them. If more credit is made available, this is naturally easier to do.

How do you improve business credit?

Business credit can be formed and improved in many the same ways as personal credit. This includes obtaining a company credit card, paying bills on time, and staying up-to-date on how your company is scoring.

Like personal credit cards, business credit cards are easy to find and apply for. However, it is important to compare the available choices, and make sure that you are picking the best option for your company. Look for low rates, as well as high spending limits. Again, a limit that seems unnecessarily high will play to your advantage, as staying within 30% of that limit will help your credit in the long run.

As with personal credit, it is unquestionably important to pay bills on time. In addition to avoiding fees, failure to pay in a timely manner will damage your credit. if you are worried about remembering to pay on time, you can set up your account to collect payment automatically.

Lastly, you need to understand how your credit is determined. Credit scores are compiled through credit bureaus. When you go for a loan, or rent a space, or do anything else that requires credit, lenders will receive your score from one of these companies. You don’t know which one—it depends on the lender—and with personal credit, it doesn’t really matter, because personal credit bureaus all do their calculations the same general way. However, unfortunately, business credit bureaus are not so uniform. As a result, different bureaus will come up with different scores. So that you are not caught off-guard, and so that you can update information as need be, keep an eye on your business credit scores according to multiple bureaus, not just one.

In conclusion

Separating your business and personal credit will both benefit your business and protect your personal finances from going under if your business fails. Establishing business credit is similar to establishing personal credit, but note the few differences there are—for instance, the higher ceilings and the less uniform scoring methods. Being aware of how business credit works will help you grow your business in a smart, financially sustainable way.

Freddie Mac and Fannie Mae: Analyzing the Bill That Would Put an End to the FICO Monopoly

Recently, three senators Ed Royce (R-Calif), Kyrsten Sinema (D-AZ), and Terri Sewell (D-AL) from the House have introduced a new piece of legislation that would basically allow the government sponsored enterprise to keep alternative credit score models in mind. In other words, this would put pressure to use alternatives other than the FICO credit score model the GSE’s use at the moment.

Sewell had said in a statement that she finds this fight critical partially because she strongly believes that these credit score models are not only outdated, but also fail to take certain factors into account (i.e., if borrowers were able to pay their rent on time). Essentially, the reps want to move away from the Fico’s monopoly credit score models.

In turn, this legislation would open the market for responsible, qualified potential homeowners who are actually qualified to buy a home. This could be a step in the right direction in terms of rectifying the issue in an effective way and allowing homeownership to become more of an attainable dream for different Americans across the country.

If this would pass, it would allow for more competition and open opportunities to other credit score companies that currently are unable to change the status quo. One company that is excited for the possible change is Vantagescore Solutions, which would definitely benefit from the increased market competition.

In a statement, the CEO of Vantagescore Solutions Barrett Burns said that “From the beginning our ask has always been to allow lenders to choose among today’s more predictive models that score more creditworthy consumers without lowering credit standards.”


Tips to Maintain Your Credit Score During the Holidays

credit cards

Most of us aren’t thinking about credit scores during the holiday season. But not paying attention to credit now may result in problems down the road. The following are 5 tips to help you maintain your credit score during the holiday season.

1. Protect Your Credit from Scammers

Credit card fraud is rampant during the holiday season. If a scammer gets any of your personal information they could potentially open new credit card accounts using your name. Once phony accounts have been opened, the late charges will be reported the following month and eventually collections will start in your name. You may not even realize you are a victim of identity theft unless the collection notices come to your address or your credit score drops significantly.

2. Don’t Apply for New Credit Just for the Holidays

Stores will offer plenty of promotions this time of year to get you to spend more money. Opening a new card, however, may cause your credit score to temporarily drop. Whenever you open a new account inquiries are made into your credit, and when that happens your credit score goes down. If you must, make sure to only open one new account. If possible, wait until a few months after the holidays to open any new accounts.

3. Do Ask for a Limit Increase

This may seem counterproductive, but most experts will tell you to never go over 30 percent of your limit. That means if your limit is $1,000, you should never carry more than $300 on the balance. If you do go over that amount your credit score will decrease. If you plan to use your card for several purchases it may be a good idea to ask for an increase. This will give you wiggle room to spend a little more without messing with your credit score.

4. Don’t Over Spend

The previous section was advice on how to be able to spend a little more without ruining your credit score. However, this should be done with caution. Overspending will lead to a larger minimum payment you may have trouble making the next month. Not missing any payments is the cardinal rule for maintaining a good credit score.

5. Don’t Miss a Payment

Missing even one payment can dramatically affect your overall credit score. FICO reports that payment history makes up 35 percent of your overall FICO score.

It’s important to make sure you have enough money set aside after the Christmas holiday to make at least your minimum payment. Finally, if you have more than one card make sure to pay off the one with the highest rates.