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.

Emergencies
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.

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.

Tips on How to Boost Your Credit Score

credit score

Your credit score is like a report card on how you manage your finances, and just as it is important to have A’s and B’s on your report card, it’s important to have a good credit score. Not only can your score play a role in whether you can get a loan, it also may affect what you pay for insurance and the amount of deposit you have to put down on an apartment. If your credit score is lower than it should be, you can follow these tips to give it a boost.

Bring past-due accounts current

One of the best and easiest ways to boost your credit score is to get current on any past-due accounts. If you are applying for a mortgage to check with the mortgage company first before paying any collections or charge offs. These accounts may not need to be paid before the loan is done and paying off old collections or charge offs will bring your scores down temporarily, or until they show some history of being paid and could cause a problem with getting the loan.

Accounts that haven’t been paid on time can greatly reduce your credit score, because your payment history accounts for more than one-third of your total score. If you have any accounts that are in collections, pay those off first and make sure the collections agency notifies that credit bureaus that you are now current. Then concentrate on bringing other accounts up to current status. One key thing to focus on, however, is that you want to make sure you don’t let any new accounts become past due while you are catching up on accounts that are already behind.

Pay down debt

Once you have worked to get all your credit accounts current, your next focus should be on paying down debt. The amount you owe makes up 30 percent of your credit score, and if you owe a lot relative to how much credit you have available, then it will affect your score. A general rule of thumb is your debt should be less than 30 percent of the amount of credit you have available. So if you have $10,000 worth of available credit, you should owe less than $3,000. This rule applies only to revolving credit accounts like credit cards, not to installment loans such as a car loan.

Don’t close accounts

If you pay off an account, you may be tempted to close it, but that can hurt your score, especially if the account has been open for a long time. The length of your credit history accounts for 15 percent of your credit score, so if you cancel accounts you have had for a long time, it can shorten your history and hurt your score. Keeping accounts open, even after they are paid off, will help boost your score.

Don’t open new accounts

The more credit cards you have, the more it can lower your score, especially if you have opened a lot of accounts recently. Opening a lot of accounts in a short time looks risky to lenders and can hurt your score. Doing so also can shorten your credit history, which can reduce your score as well.