Tag Archives: credit score

5.19 blog

What Do I Need to Know About Credit Reports?

Credit scores, credit reports, credit bureaus — you hear these terms thrown around on TV commercials, but what do they really mean for you?

Think of it like this: your credit score is kind of like a quick snapshot that shows lenders your financial reliability. It affects your ability to get a loan and determines how much you will have to pay to borrow money.

The most reliable and widely used credit score is the FICO® score. It is used by 90 percent of lenders, so this is the credit score you should always look to pull. FICO scores range from 300-850 — the higher the score the better.

Where can you find your credit score?

That’s where the credit report comes in. The Federal Trade Commission allows every person in the United States one free copy of their credit report every 12 months. That includes one report from each of the three nationwide credit reporting agencies — also called credit bureaus — which are Experian, TransUnion and Equifax.

What’s the difference between the three bureaus?

Each bureau serves the same function (to keep information about your credit history) but they remain independent of each other, sort of as a way to keep the whole process honest. They generally all have the same info on you but not always. That’s why the individual credit scores can differ from one another. You can pull all three reports at once to get the clearest picture of your overall credit health, or you can stagger them over the course of the year to see how your credit score has fluctuated and keep an eye on accuracy.

Where should I pull my credit report?

The only authorized website where you can obtain your free credit report is annualcreditreport.com. Since you will be providing personal data like your social security number, it’s imperative that you use a trusted site for this service and this resource is recommended straight by the US government.

Keep in mind that you can only pull your credit report if you have accumulated enough information. That means you must have at least one account that’s been opened for a minimum of six months and at least one account that has reported to a credit bureau within that timeframe.

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Financial Literacy Tips & Tricks from Money Management Superstar Rachel Fox

As Financial Literacy Month comes to a close, now is the time to start thinking about how you can take what you’ve learned and apply it to your  life. Not sure how to do that? Check out some tips and tricks to help ensure you’re making the most of your money from teen personal finance guru Rachel Fox of Fox on Stocks.

Saving is KEY

Establish killer credit as soon as possible

Build your budget

Feed your 401K early and often

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5 Tips for “Spring Cleaning” Your Finances

When you hear the word “spring,” uttered for the first time after months of dreary winter, what kinds of images are conjured up in your head?

Warmth. Sun. Birds. Flowers. Cleaning?

It may not be the most alluring aspect of the new season, but according to the American Cleaning Institute, 72 percent of people will likely engage in some sort of spring-cleaning this year. So if cleaning is top of mind when you think of spring, you’re not alone.

But don’t limit spring-cleaning to only your home. This is also the perfect chance to give your finances a nice tidying up. Here are five financial spring-cleaning tips that will give your finances a fresh new shine for the rest of the year:

  1. Form a realistic plan for getting out of debt

Without a strategy, you could suffer from the fiscal strain of debt for years. Apply a simple plan for your debt, and you’ll be able to mark a date on your calendar when you’re free from the shackles. Start by spending less than the amount you earn each month, and then decide on an amount you’ll put toward debt each month and stick to it.

  1. Do your math before taking out a loan

Whether you’re planning for your teen’s education or considering furthering your own, loans are often part of the equation. Make sure you understand the commitment before accepting a loan or you’ll be in for a rude awakening. A $100,000 loan at 6.8% interest will demand monthly payments of $1,100 for the next 10 years.

  1. Save for retirement

And do it now! The sooner you start putting in money for your golden years, the shinier those years will be. Once you’re retired, you won’t have a source of income to support yourself. Seems obvious, but then again so does saving now for retirement, yet plenty of people neglect to do so.

  1. Make a budget

Putting your plan on paper in the form of a budget will help make the first three tips easier. If you don’t know where to start on a budget, follow the 50/20/30 rule: 50 percent to essential expenses, which includes housing, transportation, utilities and groceries; 20% to financial priorities, which are retirement, savings and debt (in that order); 30% to lifestyle items, which are gifts, travel, dining out, shopping and everything else.

  1. Check (and understand) your credit report and credit score

A good indicator of how tidy you’re keeping your finances is your credit report and credit score. They will determine if you’re eligible for big savings when you make major purchases like a car or house (anywhere from thousands to hundreds of thousands in some cases). Additionally, make sure there aren’t any mistakes on these documents as that can have serious effects on your credit and your ability to borrow money.

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5 Things to Avoid Buying with a Credit Card

As much as you try to reinforce to your teens that credit cards are an adult responsibility that should only be used with proper planning and budgeting, it’s hard to deny the magical aspect of using a plastic card to buy things you need or want without having to fork over cash at the time of purchase.

The concept that you will be paying for this later, and sometimes paying more if you cannot make monthly payments and incur high interest rates, can be a difficult concept to grasp for even seasoned credit card users. Make sure your teen knows what NOT to pay for with credit cards to ensure they don’t fall into a pit of debt as soon as they head off on their own after graduation. It’s easier than cataloguing the numerous items they can buy with credit, and will at least safeguard them from buying expensive items they will never be able to realistically afford.

Here are five items your teens should never pay for with a credit card:

  1. Tuition: 

Yes, a college education is important, if not a requirement for success these days. Trouble is, the cost of college tuition is perpetually on the rise and college students are still as broke as they always have been. Due to the exorbitant costs of education, most teens receive financial help either from their parents or through scholarships and loans. But if your teen is responsible for even a portion of their tuition, they should not use a credit card to pay the bill. Many schools will add a convenience fee (roughly 2-3%) for paying with a credit card. On top of that, the amounts are so large your teen wouldn’t be able to pay off the credit card before having to start paying interest on it. If your teen is having trouble paying tuition on time, talk to the school and find out about the types of low-interest student loans, grants or work-study programs that are available to offset the cost.

  1. Vehicle:

Not every auto dealer will accept credit card payment, but the ones that do will likely charge a transaction fee of 1-2%. When you’re buying an expensive item like a car, 1-2% can add up to several hundred dollars. Also, the chances your teen has a credit card with a high enough limit to handle the initial down payment on a car are slim. More than likely, your teen would max out their cards, negatively affecting their credit score. Instead, consider borrowing from a bank or credit union. Interest rates would be around 3-4%, compared to 15% rates your teens would endure on the average credit card. Another benefit of receiving an auto loan is adding it to your credit report, which helps the health of your credit score.

  1. Medical bills:

The cost of healthcare is not cheap and paying for it with a credit card will add high interest rates to the overall bill. Your teen could wind up digging an early debt hole that could affect their future finances if they go down this road. Contact a hospital’s financial department to help your teen set up a payment plan. This result in smaller or no interest charges and give them a clear road to paying off the balance completely.

  1. Taxes:

If your teen needs to file taxes and ends up owing money to the IRS, they should not use a credit card even though it is an option. Like vehicles, taxes can end up being a large dollar amount and tax preparers will charge a convenience fee for using a credit card. The 2-3 percent fee could tack on a good amount of added money if the initial amount owed in taxes is high to begin with. Plus, interest rates on credit cards are other higher than what the IRS charges through its range of payment plans. Speak with the tax preparer to figure out the best way your teen can pay taxes or contact the IRS ahead of time to work out a payment plan.

  1. Business startup:

So your teen is using their education to begin a business. Excellent! But they use a personal credit card to expense their venture to get it off the ground. Not so excellent. This tactic is risky because it generally takes a few years for business to become profitable. In that time, your teen will pay high interest rates on those costs, effectively negating any profit from the business. Small business loans are more suitable in these situations.

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Help! Should My Teen Have More Than One Credit Card?

Now that you’ve made a decision to get your teen a credit card, and you know some of the best credit cards out there for teens, the next logical step is considering how many of those cards should be in your teen’s wallet.

This info isn’t just important for teens — but parents, too. In fact, despite the resistance from most teens to take parental advice on all matters of life, 3 in 4 teens will turn to their parents for financial guidance.* So it’s crucial that you understand how many credit cards a teen should have so that when they come to you for advice, you’re able to give it.

While one school of thought advises holding no more than two personal credit cards, others suggest opening up to eight, spread out over time. The number of cards you ultimately decide to open should depend on your situation and needs (the U.S. average is three to four). Let’s get started with the basics to help you and your teen make an informed decision.

The Good

Rewards! Different cards offer different incentives, so if you find you’re using your card primarily for gas and not receiving rewards for it, perhaps it’s time to open a card that does. Sticking to this philosophy, you might open up several cards, using each one exclusively on the item that awards bonus points or cash back. This way you can rack up rewards while simultaneously making it easier to track your finances.

For teens that are looking to buy a big-ticket item, opening a new card with a long-term 0% APR period allows them to pay it off slowly without added interest. They’ll finally be able to buy that phone, video game system, or even a car and learn how to budget their money to responsibly make the monthly payments. That’s a win-win!

The Bad

This is every parent’s worst fear: Teenager gets credit card; teenager buys item outside of budget range; teenager can’t pay monthly balance; teenager incurs massive late fees; teenager’s credit score suffers; parent must come to the rescue. Unfortunately, this scenario does play out among countless teens. In a rush to grow up, teens can dive head first-into the privileges of adulthood ill-prepared for the consequences.

Opening one credit card for a first-timer requires a lot of learning and responsibility. Having to manage multiple cards is confusing and can wind up costing a pretty penny if bills are not paid on time. With all the compounding fees, a credit card holder could end up having to shell out more money than they have, and credit scores could plummet to levels worse than someone with no credit at all.

The Ugly (Truth)

The way the credit bureau system works isn’t straightforward. In fact, it may seem counterintuitive, especially for teens who are unfamiliar with the ins and outs. In short, if you want to build and maintain good credit standing you need to have debt. Yup, that’s right. Debt is good — sort of.

You need to prove that you are a reliable borrower, which means using your credit card regularly and paying it off, while proving to be somewhat of a risk. Remember, this is a business and lenders are hoping to make money off of you! If you never use your credit cards, lenders see little value in you as a source of income.

For those who wish to play the credit game by maximizing the amount they can boost their credit scores helps to have more than one credit card. As a borrower, you are looked upon favorably if you use some but not all of your available credit. So instead of using $900 on one card with a $1,000 limit, open three cards with $1000 limits and use $300 on each. It might not be abundantly clear why, but trust us when we say it will increase your credit score.

Boosting your teen’s credit score is tricky. We don’t recommend trying to do it all at once. Instead, focus on the most important aspect of a credit score: paying bills on time!

(* Source: Survey conducted by The Futures Company on behalf of H&R Block Dollars & Sense.)

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Keeping Money Safe: Teaching Teens About Identity Theft and Banking Security

By Lisa Carey, contributor

You may wonder why you need to teach teens about identity theft and bank security. One reason is the need to know these potential crimes as part of overall responsible money management.

Another reason is teens and college students are among the most likely to be victims of identity theft; after all, they have a clean credit record. Lastly, it can happen to you — it did my adult son.

Just imagine the excitement my son and I experienced as we were heading to the jewelry store to pick out an engagement ring for his soon-to-be fiancé. After much thought and negotiation, we managed to find the perfect ring at the perfect price. My adult son had no prior credit as he paid cash for everything, so this was his first experience with a credit card application. The application came back denied. Wondering why, I asked for a copy of the report and we find that he had several unpaid credit cards reported; however, he had never had a credit card. “What do I do, mom?” was his next question.

Avoiding Identity Theft and Creating Bank Security

Super cyber security. Tweens, teens and even college students post a great deal of information online. I can just see someone posting an “I got my first credit card!” selfie with credit card in hand. That’s an obvious no-no to some, but what we also need to teach our teens about identity theft is that it’s often created by bits and pieces of a person. Posting information like your complete date of birth and address can be just enough to give an identity thief the tools they need to create a new you.

Create solid passwords and change them on occasion. Let’s not forget that sharing usernames and passwords can also provide someone with all the information they need to create a credit record. Sadly, teens are most frequently the victims of identity theft by another family member.

Chip that card and shred documents. Many parents are helping their teens with their banking habits. If possible, request a debit/credit card that is chipped and can help eliminate some of the more sneaky ways of stealing your card information.

Another way to keep your card safe is to not store the information with online stores. Also, shred banking statements, credit card offers and other documents after they’ve been reviewed. These steps not only help with preventing identity theft, but they also create a more secure banking experience.

Check their credit report yearly. As an adult, you check yours; you should check theirs, too. That’s one way of finding out if there is a problem long before your teen grows up and really needs or wants to obtain credit.

Turn off those texts! Do you have a text-obsessed teen? Teens will respond to just about any phone call or text even if they don’t know the person. Teach your teens about spam text messages and phone calls that are “phishing” for information.

Make sure they know to avoid responding to messages they don’t know as well as calling back unknown numbers that appear on caller ID that didn’t leave a message. Teens need to know they never need to give that information out via text.

I fell down on the job on this one. In all my research about how to be a good parent I never even once thought of my child being a victim of identity theft. But as parents, we do live and learn, and now I know from experience what to tell my younger children about identity theft and bank security before their money, credit or identity is compromised.

Lisa Carey_150hLisa Carey, owner of Money Saving Parent, worked with children of all ages in the field of education for more than 15 years, preparing her for her four children aging from elementary school to married. She also shares activities that make learning fun for everyone on her blog AtoZ Learning Tree. As a featured parenting contributor for Yahoo and a family and parenting columnist, she is a nationally recognized parenting expert. When she’s not busy writing, she can be found with her family; traveling, reading a good book and showing them how to save for tomorrow and live for today.

 

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Five Ways to Help Your Teen Boost their Credit Score

By Jaime Ervin, contributor

When your teenager ventures out into the real world, there will be many financial and lifestyle options that will be made available—or unavailable—based in part on their credit score. The quicker we can get teens thinking about credit and understanding how to use it, the better off they’ll be as they strike out on their own.

While your teen may not be ready to have their own American Express card with an unlimited credit just yet, there are steps that you can take now that will help them boost their credit scores.

What’s in a Score?

Knowing what makes up a credit score is important. Encourage your teen to make the connection between financial behavior and consequences by explaining to them the components that factor into their credit score: length of history, credit usage and payment history, for example.

Many adults don’t understand everything that goes into their credit score, so helping your teenager to understand even the basics will go a long way.

Set Credit Goals

The concept of a “credit score” may be somewhat ambiguous to a teenager—after all, it can seem like just a random number, even to adults. Help them make a connection to what big-ticket item that boosting their credit score will help them with—which for most teens is a car.

Making their goal tangible will help them stay on track toward a great credit score and getting a good deal on their vehicle financing. Show them concrete examples of how a good credit score can mean better payment terms and lower interest on their car loan.

Use Credit for the Right Reasons

It should be made very clear to teens that they should use their credit to make life more convenient, not to spend more money than they otherwise would. If you wouldn’t spend it in cash, don’t put it on the credit card. Because so much of their score is based on usage and payment history, it’s important to not overextend.

On Time, Every Time

One thing that will help teens get their credit score up and keep it up is making all payments on time. Starting good payment habits early can set teens up to be responsible credit users as adults.

Keeping even one account from going into delinquency or collection can save them a ton of points on their score, and thousands of dollars in finance charges and increased interest rates on loans. 

Lead by Example

It is so much easier to get ahold of your own credit score now than it ever has been. Use the availability of your own information as a teaching tool with your teen. Pull your credit and look at it with your teen. If your credit is superb, you can give them advice about how it is saved your family money to be in that position.

If your credit looks a little rough, use it as an opportunity to talk with your teen about how to stay out of financial trouble. Have a frank and honest discussion with them either way, and let them know that building (and fixing) your credit is a marathon—not a sprint.

Above all else, keep it light and interesting for your teen. The last thing you want is for them to tune out on such an important part of their financial life. Help them get excited and follow up with monitoring by checking their report with them a couple of times a year so they can see how things are progressing. Nothing motivates like looking at the scoreboard!

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Jaime Ervin
is a mom, attorney, and certified teacher living and blogging in Western New York. Raising an eight-year-old fairy princess and a sassy teenager who can’t wait to be 30 is her life’s greatest challenge and joy. You can find her blogging at www.parentpalace.com.

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How Real-World Experience Can Teach Smart Spending

With summer jobs well underway, now is the perfect opportunity to teach teens the true value of their time and earnings while preparing for the school year ahead.

Watch and Learn

Electric, water and cable bills are all great teaching moments for teens. Have your teen open bills as they arrive and watch as you pay them so they become aware of the cost of services they may be taking for granted.

Test-Drive Exercises in Budgeting

Turn back-to-school shopping into a spending exercise for your teen. Hand your teen a set amount of money in cash and tell them it is the total amount they’ll get for back-to-school shopping. By giving your teen the reigns, they’ll likely think twice about the cost of each item and its value.

If the first shopping trip was a success, take the lesson a step further and have your teen purchase groceries for your family for the week on a budget. This will not only further emphasize the cost of living and the value of money, but also help hone budgeting skills.

Next Step: Credit

Teach your teen credit by having them review your credit card statements with you. Make sure to explain the statement balance versus the amount that you would eventually spend if you only paid off the minimum balance every month.

A major factor of credit score is credit history, so the sooner your teen starts using credit responsibly, the sooner they can begin to establish a strong credit history. Make sure your teen understands the financial implications of leaving balances on credit cards and the benefits of using credit responsibly.

Once your teen understands credit, craft real-world practice scenarios for him or her. Buy something for your teen “on credit,” with the premise that he or she will pay you back at the end of the month for the purchase with his or her own money. This experience will teach your teen the importance of keeping track of charges, so that they have the necessary funds saved at the end of the month to pay you back.

Be sure to reinforce the time your teen would spend at work to be able to afford each item. Respecting your teen’s independence and letting him or her see the cost of necessary expenses will help to teach your teen smart spending and prepare your teen to manage his or her finances carefully beyond high school.

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How to Help Your Teen Choose a Credit Card

Many parents shy away from giving teens credit cards, fearing they’ll rack up debt or misuse the card. But building credit history and healthy credit habits are some of the most important life-long financial skills you can teach your teen.

The first step is helping them find the right one. With thousands of credit cards to choose from, how do you know which is best for your teen? There are different ways to approach it, but consider how old your teen is and their financial standing.

Young Teens (Ages 13 to 17)

Don’t worry: Teens this young are not legally allowed to have their own credit accounts. However, this isn’t a reason to keep their credit histories blank.

Young teens can be added as either an authorized user on your credit card account, or parents can open a new credit account of which both you and your teen are joint account holders.

Both options are a great start for building your teen’s healthy credit history. You will be able to establish a credit file for your teen while maintaining control of their credit habits.

Keep in mind that any debt on the card or lazy credit habits like late payments will transfer to your teen as well, lowering their credit score. Also remember that you’re ultimately responsible for any charges your teen accrues.

Older Teens (18 and Older)

Once teens reach adulthood, there are lots of credit card options. While parents can keep their teen as an authorized user or joint account holder on one of their cards, if you feel they’ve showed they can be mature and responsible with a credit card, consider having them open their own credit card in their name. (The regulations for this vary from state to state; in some states, cardholders under the age of 21 require a parent or guardian to cosign.)

If your teen opens a card without a cosigner, urge them to opt for a card with a lower credit limit, while keeping in mind your teen’s financial situation. If your teen has multiple part-time jobs and a healthy income, then their credit limit can be a bit higher than one given to unemployed teenagers.

The next major decision will be deciding on the right card for your teen and whether they will choose a student card or a secured card.

Student cards and secured cards are the two main types of credit accounts offered to teens. A secured card sets a credit limit based on the size of a security deposit placed on the account; an unsecured student card doesn’t require a cash deposit, and is tailored to students’ needs, like lower credit limits and offer incentives aimed toward a student lifestyle, such as cash back on groceries or textbooks.

Teach your teen that card rewards are not a worthwhile reason to generate a high balance. Many teens, especially young college students, fall into the trap of spending more just to receive more airline miles or cash back.

While both student cards and secured cards are great ways for your teen to practice responsible credit and build credit, credit bureaus generally don’t see secured credit cards as favorably as unsecured student cards.

Whichever credit arrangement you decide works best, make sure your teen knows the ground rules of a credit card and the risks and benefits associated with using them.

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2015 Financial Planning With Your Teen

By Wendi Williams, contributor

Growing up I was taught to save for a rainy day, balance my checkbook and to check the weekly paper for coupons. Simple investments for my future were foreign and scary. It wasn’t until I was in my 30s that I took a very active role in my money, how it was spent, and where it was invested.

Most of our kids are not educated in financial matters and it essential we change this. The new year is around the corner and 2015 is the perfect time to get started.

As parents, we expect our teens to be teens and we want to save them from irresponsible teenage mistakes. We discipline them for not getting good grades, encourage (sometimes force) them to go to college, yet we do not effectively teach basic fundamentals of finance.

Parents today need to emphasize the importance of credit scores and savings. Ask your children if they hope to purchase an automobile, boat or a house at some point during their lifetime. All of these purchases will involve either their credit score or savings, and typically both.

Failing to explain the perils of poor credit can have lasting effects. If you’re like me, the thought of co-signing for a credit card for your teen caused you to take a really big gulp trying to get that lump out of your throat. It is scary, but wouldn’t you rather have your children make financial mistakes under your supervision?

The key to your sanity is setting a low credit limit. Discuss the credit agreement with them, what the APR means, and what late/missing payments will do to their score and how it affects them moving forward in their lives. It wasn’t until I was out of college, living paycheck to paycheck before I understood the true concept of saving.

Start with a goal, such as living off of 80 percent of your income and saving 20 percent. Every time they get a birthday card in the mail with money in it, have them put 20 percent in a savings account.

Sit down with your kids and make a budget. If you need help, most banks have online budgeting tools (which you will have access to because you opened up a savings account for them)!

Once they are on point with their budget, incentivize their savings. Depending on their age and stage in life, have them save for a vacation with their friends or to buy a car. Institute a matching program like a company would with a 401K.

What more could you ask for than teaching your children to be fiscally responsible while also saving you money! You know, the money they have saved for their first car, college textbooks, spring break, etc.

Ultimately, getting teens to sit down and listen to you is going to be the biggest obstacle of all. As parents, we are charged to prepare our children for life and finances are a big part of it. Let’s start 2015 with investing in our children.