March 2009 Archives

Cheryl

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So after reading entries from Barbara and Kathy, we should all probably know how important it is to keep your credit healthy and why you should check your credit report from time to time.

But if you're anything like me, you probably still have five bajillion more questions about this thing called a "credit score." Like how is it calculated? What can you do to improve it? And what's considered a "good" score?

I mean, seriously, did you ever imagine that another ambiguous number could mean so much to people since your SAT score? 

I did some investigating and figured I should share this with people who care (and if you've read this far, you must!). Basically, your score measures how likely you are to pay someone back. The higher your score, the more dependable you appear to potential lenders. Scores can range from 300 to 850 and are calculated using the information in your credit report. A lender will offer you a better interest rate the higher your score. Having a low score can lead to higher interest rates and you may even have trouble getting approved.

Keep in mind, your credit score considers all of the above and not just one or two of these things. Take a look at the graph above to see how it breaks out according to MyFICO.com .

With that, here is the skinny on how to keep your score as high as possible:

1. Always pay your bills on time.
   It spells trouble in River City  if you let any of your accounts go unpaid 30 days after the due date. Not only do you get dinged with a late fee, this also can drop your score way down, especially if you had a perfect record before. If this happens even once, it could remain in your credit history for up to seven years. And as Rollo says in Juno : "That ain't no etch-a-sketch , that's one doodle that can't be undid, homeskillet."


2. Pay off your debt.
   By always paying off your credit card balance on your cards and keeping the amount you owe to a minimum, you can improve your score and prove you are dependable to potential lenders.


3. Be selective.
   If you don't have a lot of credit history, opening a lot of accounts like gangbusters  can hurt your score. So resist opening a new card at every retailer who offers you a discount and choose your cards strategically. Personally, I tend to use one card that can be used everywhere. This allows me to earn rewards points or cash back faster AND makes paying my monthly bills a lot simpler!


4. Keep your oldest accounts open.
   Established credit accounts are great for showing credit history and adding to your score. Closing your oldest account would eradicate any good credit attached to it. And the lame part is it doesn't work both ways. If you close an account with a mediocre history, that history stays with your credit score.
5. Mix it up.
   Having a variety of credit — retail cards, bank cards, installment loans, etc. — can benefit your score. But since this is worth just 10% of your score, you shouldn't be opening new credit just to diversify your mix. Make sure you really need the credit.

So now that you're a little more familiar with what your credit score means and how it's calculated, you're probably dying to find out how you're doing, right? Well, you can pull it the old school way, at AnnualCreditReport.com , where you are entitled to one free credit report per credit bureau per year (the report is free, but you will have to pay for your score).

If you want to monitor more frequently without paying for an ongoing service, peep this out: a new site called Credit Karma  (still in beta) just entered the scene and it will simulate your score anytime, anyplace!

Editor's note: Please join us in welcoming Cheryl, who shares Barbara's penchant for discount designer shoes, as the newest Student LoanDown blogger.

Kathy

Last time, I started going over the basics of the credit report with my Curious Mythical Reader (CMR). Let's listen in on the rest of the conversation:

CMR: So wait, what's in my credit report again?
KD: In addition to your personal identifying information (name, Social Security number, etc.), your credit report includes the following info for credit accounts you have opened or applied for:

• The type of credit you have (credit card, auto loan, student loan, etc.)
• Your credit limit or original loan amount
• Your account balance (or the total balance of your last statement)
• Your payment history (late payments stay on your credit report for seven years)
• Bankruptcies (these stay on your credit report for 10 years)

CMR: Are all parts of my credit history reported with all three of the credit bureaus?
KD: Not necessarily. Lenders may provide information to one , two  or all three  of the credit bureaus, so some of the information may show up on one of your reports but not another. You should therefore be sure to check your record at all three credit bureaus.

CMR: So shouldn't we really call it credit reports (plural)?
KD: Yeah, I guess you have a point.

CMR: Okay, I'll drop the semantics. So how often should I check my credit report?
KD: The common recommendation is that you check your credit report from each of the credit bureaus at least once a year. You should also check your credit report any time you are thinking about making a big purchase (buying a house or car) or investment (going to school) that would require you to take a loan. You want to make sure that there are no errors in your report. You also want to give yourself time to make any improvements to your credit that you can before applying for a loan.

CMR: Times are tough, and checking my credit sounds expensive. Can I check my credit report for free?
KD: Absolutely — in fact, you are legally entitled to check your credit report from each of the three credit bureaus one time per year FOR FREE. Yup, for free! Just make sure that you go to a legitimate free credit reporting website  or go straight to the websites for the individual credit bureaus themselves. Be careful of websites and companies out there that claim to offer this service for free but then sign you up for another service with a cost. As with all things in life, be sure that you know what you are agreeing to!

CMR: What do I do if I find an error in one (or all) of my credit reports?
KD: If there is information showing on a credit report that you believe is incorrect, you should immediately contact the appropriate credit bureau(s) to try to get it corrected. There should be contact information listed on each report, so be sure to begin the process of correcting false information as soon as you learn about the error.

CMR: Thanks Kathy! You're the best!
KD: Oh, go on... No, really, go on...

CMR: Uhhhh, no.
KD: Gotcha.

Any Curious Real Readers (CRR) out there with questions, comments, concerns?

Kathy

Last fall, when I wrote about my experience moving into a new apartment, I mentioned one of the important things to know about in order to properly manage your credit: your credit report.

As part of this special series on credit, let's take a step back and examine the credit report in a little more detail. To do so, I am going to have a pretend conversation with a Curious Mythical Reader (CMR). There's even an imaginary guest appearance from the Fair Trade Commission  (FTC)! Check it out:

CMR: So, like, what is a credit report anyway?
KD: Instead of trying to reinvent the wheel, I'm going straight to the government's source for consumer protection — the FTC — and their website's definition of credit report: 

FTC: "Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by consumer reporting agencies (CRAs). One type of CRA is commonly known as a credit bureau."

KD: There are three main credit bureaus in the United States: 1. Equifax , 2. Experian  and 3. TransUnion. 

FTC: "You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance or a job."

KD: In other words, there are lots of areas in your life that have the potential to end up on your credit report.

FTC: "Your credit record contains information about your income, debts and credit payment history. It also indicates whether you have been sued, arrested or have filed for bankruptcy."

KD: The good, the bad and the ugly, folks. It's all in there.

CMR: Okaaaaaaaay...but why do I need to know about it?
KD: There are lots of reasons to be aware of what is in your credit report. The information listed in each credit record says a lot about you, and it provides an indication of your ability to make payments on time. It is often used as a personal reference by employers and landlords, since how you have managed your money in the past may be an indication of future behavior. Utility companies may look at your credit report before they agree to turn on your electricity, cable television, phone, etc. Lenders, such as banks, car companies and more, will use the information in your credit report to determine whether they will lend you money and at what interest rate.

CMR: Hmmmm, I have also heard something about identity theft...?
KD: Yup. As if all reasons people use your report weren't enough, it is also very important to keep tabs on your credit report to make sure that you have not been the victim of identity theft. You should carefully check the information listed in the report to make sure that only the accounts you have opened are listed in the report. If someone else opened a credit account under your name, you need to know about it as soon as possible and immediately take steps to correct it!

CMR: Whew! That was a lot of information...
KD: And I'm just getting started. Next time we'll cover how often you should check your credit report and what to do if you find any errors.

In the meantime, anyone out there with questions?

Barbara

Editor's note: We want to take some time to talk about one of your most important financial assets: your credit. Over the next few days, Barbara, Kathy, and our newest blogger Cheryl will be dissecting credit — why it's important, how you monitor it, and what you can do to build or fix it.

Imagine this summer. You've snagged a great internship or your first job out of college, and you're looking for a place to hang your hat after work. You find a great apartment, fill out the lease application and start thinking about how to decorate your pad. Then you get the call from the apartment's manager. Unfortunately, she says, you don't have good enough credit to live there.

Gasp! Turns out those late payments to your utility companies and spring break costs still sitting on the credit card can affect you more than you'd thought.

Your credit can affect more than just your financial life.  It's true that landlords may check your credit before allowing you to rent an apartment. Your prospective employer may look at your credit to see if you are responsible. You may even find that your credit is examined in determining your auto insurance.

And obviously, the big reason you need to be concerned with your credit situation is so you're able to secure some credit down the road! Whether you're borrowing for a car, your education, or everyday purchases through a credit card, a good credit history is key. For a little more insight into what lenders are looking for consider the "5 Cs" of credit, from the Hands on Banking® program :

• Character: When lenders evaluate character, they look at stability — for example, how long you've lived at your current address, how long you've been in your current job, and whether you have a good record of paying your bills on time and in full.
• Capacity: This refers to considering your other debts and expenses when determining your ability to repay the loan. Creditors evaluate your debt-to-income ratio, that is, how much you owe compared to how much you earn. The lower your ratio, the more confident creditors will be in your capacity to repay the money you borrow.
• Capital: This refers to your net worth — the value of your assets minus your liabilities. In simple terms, how much you own (for example, car, real estate, cash, and investments) minus how much you owe.
• Collateral: This refers to any asset of a borrower (for example, a home) that a lender has the right to take ownership of and use to pay the debt if the borrower is unable to make the loan payments as agreed. Some lenders may require a guarantee in addition to collateral. A guarantee means that another person signs a document promising to repay the loan if you can't.
• Conditions: Lenders consider a number of outside circumstances that may affect the borrower's financial situation and ability to repay, for example what's happening in the local economy.

If you don't have the greatest credit (or don't even know what your credit situation looks like), don't fret: Now is the perfect time to explore your credit.

We'll show you how to get a good picture of where you stand on the credit spectrum and what you could do to help your cause. And if there's something you definitely want to know more about when it comes to credit let us know.

Rachel

I caught a little heat from my boss after she read my last post on internships because I failed to mention that my job now actually sprung from an internship she granted me five (whoa!) years ago with Wells Fargo. Oops.

So here's my Wells Fargo internship story.

I had just graduated from college with a degree in Journalism and an emphasis in advertising. I needed a job. My neighbor worked for Wells Fargo and said they were hiring. So I applied for a banker job. Banker. A Journalism major? I know.

It was interesting at first. I might as well have superglued  my calculator to my right arm. After learning the ropes at my branch, I heard about the marketing department. Light bulb! I knew what I wanted to do.

Here are the steps I took:

• Requested an informational interview with the Marketing Manager.
• Received word that she was willing to meet with me! Celebrated by buying a new outfit to wear for the meeting.
• Arrived embarrassingly early (I think 45 minutes. This is not advisable. I really should have stopped for coffee to kill time — decaf, of course).
• Attempted to ask insightful, intelligent questions during the interview.
• Sent a thank-you note. 
• Wrote one of my college professors asking him for advice on what to do from there.
• Traveled to Europe with my BFF  and realized I wanted to move to be closer to her and my friends.
• Requested a job transfer.
• Arrived at new branch.
• Checked into new region's marketing set up. Found out they were looking for an INTERN!
• Hiring manager called her college professor asking for student recommendations (the SAME college professor I had asked for advice).
• Applied for the internship.
• Was given 24-hour notice for the interview.
• Was super nervous and choked a little during the interview but mentioned the informational meeting I'd had (bonus!).
• Miraculously an internship offer was extended.
• I accepted!

Five years later, I've graduated from intern to marketing consultant and I'm ever so thankful for every opportunity that's come my way. I really I think it comes down to knowing what you want, learning everything you can about it (and all things related to it) and demonstrating all the great things you have to offer to contribute to it. I'm still earning my stripes in my job, and all the basics continue to help me as I work toward whatever comes next.

Barbara

Does the financial news these days have you down?

With the majority of what we see in the paper and hear over the airwaves focused on the tough times folks are facing in a difficult economy, some of you may be thinking the worst when it comes to your own financial situation. It's hard not to, right?

Well, in the midst of all the doom and gloom in the news, I saw a light at the end of the tunnel for our young adult readers. This MSN Money article highlights the reasons why people under 35 years old may be able to benefit from our current economic situation.

And there's another positive. Folks seem to be taking more initiative to learn about their financial situation and options. We've definitely seen questions from some of you exploring your student loans through our Ask the Expert tool.

If you're looking to get a better grasp of the financial world, you can build a great foundation through the Hands on Banking® program. Financial savvy is super important, especially now.

So get in there, tigers! And as always don't be afraid to ask questions.

Caroline

If you're a high school senior, Decision Day is almost here. You're getting to the point where you should be receiving your award letters  from colleges.

If you haven't already decided on a school, these award letters are probably a big part of what you've been waiting for. For many students, school choice comes down to the financial aid package.

So what can you expect? Your award letter typically will list the Cost of Attendance (COA), the federal aid you're eligible for (grants, work-study, and student loans), and your Expected Family Contribution (EFC).

Review your award letters carefully, considering these important points  to be sure you understand the aid that's being granted and what your final costs will be.

The link above lists some key questions to ask, such as:

• Does the Cost of Attendance include all projected costs?
• How do non-institutional scholarships affect you award amount?
• Does the aid package likely cover the same expenses every year?

When it comes to award letters, they're not all written in the same format, so here's a cool tool  to help you compare apples to apples. Don't be afraid to contact the school to get all your questions answered.

Are you waiting for an award letter before deciding on a school?

Barbara

It's about that time of year when the new faces I've been seeing at the gym since the start of 2009 begin appearing less frequently. Ah yes, it's the time when those resolutions made just three short months ago fade away, and we revert back to our 2008 selves.

My health resolution wasn't about the gym, but rather eating healthier. Let me rephrase: To eat healthier while staying frugal.  Frankly, it's a difficult task, especially when those dollars seem to go further on a fast food value menu than in the produce section.

Healthy food can add up quickly, so here are some tips for those of you who, like me, find their resolution motivation is waning:

• Buy produce in season.  Fruits and vegetables that are in season will not only cost less, but they'll taste better, too.
• Grow your own food. You can get a good idea of what will work in your area with resources from your local Cooperative Extension office.  Don't forget herbs and spices, too! Even if you don't have space to grow an expansive garden, anyone can put a tomato plant by a window, right?
• Stock up on sales. Buy more of your standard non-perishable items when they're on sale. You can even make your own snack-sized servings with reusable plastic storage bags instead of paying more for pre-packaged goods.
• Freeze bulk food. If you find a sale on meat, buy more than you need and freeze some for later. Or when that garden is so fruitful you can't eat it all, freeze extra strawberries, zucchini, etc., to use later.
• Substitute a different protein. Yes, meat can be pricey. But different proteins, like beans, can be a less expensive option.
• If you have to pick fast food, make smart choices.  You can find healthier, inexpensive options, but you have to look for them.

It's nothing groundbreaking, but sometimes all us resolvers need is a little reminder. Are there any other methods you use to keep meals healthy on a tighter budget?

Staci

College students are well-known for their frugal habits. Ramen noodles , anyone?

But in a recession, everyone can take a page from college students, who know how to have fun on the cheap.

I'm taking a page myself. After four months of making double mortgage payments (and no offer in sight on my old house), I've had to adjust my own spending habits. Things that seemed essential in better financial times — like my HBO  subscription — suddenly find themselves on the chopping block.

But giving up Flight of the Conchords  doesn't mean I have to give up entertainment altogether. I recently discovered Redbox  $1 DVD rentals at my local grocery store. A buck plus tax will get you the latest new release for an evening, provided you return it the next day. You can return the DVD to any Redbox location — it doesn't have to be the same one you rented from — and you can reserve DVDs online ahead of time, too. Plus, since you're already at the grocery store, you don't have to make an extra trip!

Sure, Redbox isn't the only service of its kind out there. My best friend Charlie swears by Netflix  because he doesn't even have to get out of his pajamas to watch movies — the DVDs are delivered to his door or he can watch them instantly on his laptop. The selection is greater, too. But that requires a longer-term commitment, not to mention more than just one dollar.

In this economy, are you changing your entertainment habits in any way?

By the way, I'm drawing the line at ramen noodles. I ate far too many of them in college!

Caroline

Graduation is looming, seniors. Do you know what you'll do with your major?

If your major is something general — the kind that lends itself to graduate school, like psychology , sociology or English — what happens if you don't go to grad school?

It can be daunting to look for a job if you don't feel you've been trained for a very specific position — especially in today's job market.

My advice? Keep an open mind about what kind of work you're willing to do. If you're truly committed to your field, by all means, seek a position in it. But if you're not — don't get too terribly hung up on finding a job that matches the career path you chose as an 18 year-old freshman.

Also, live in the real world. Remember that your degree doesn't necessarily entitle you to a high-paying job. A college degree will open doors, and in the long run is a good investment , career-wise. But you may still have to start at the bottom with your first job — so don't freak out if you find yourself working in a job that feels beneath your skill level, or if you realize that others with less education are making more money than you at first. Tuck your pride aside, and remember that many jobs build experience and are stepping stones to greater things.

If you do find yourself working in a job that doesn't feel like it's leading where you want to go, try building your resume and making contacts another way. Do some volunteer work  that you love — it may lead to a job down the road that you love.

And remember that most people don't have straight and predictable career paths behind them. A couple examples from the real world: I have two friends that were sociology majors — one worked for AmeriCorps VISTA  for two years directly out of college. She eventually got her masters degree and is now a teacher. The other went to work for a non-profit organization directly out of college. She worked a couple other jobs, then eventually earned her master's degree and now works for a university.

What type of job will you look for after graduation?

Barbara

The Facebook  status updates are overwhelming me: "So-and-so has two more weeks until spring break," "So-and-so is dreaming of spring break," "So-and-so can't wait to spend spring break on the beach."

Sigh. I wish I had a spring break. But since I don't, let's talk about your spring break. Ah yes, the yearly tradition where many college students head to more fabulous locations to escape from their college obligations, if only for one week.

Are you taking a big spring break trip?  My guess is that in the current economy (groan, I hate talking about it) some of you may be scaling back your spring break plans.

Perhaps you are thinking about some less expensive alternatives?  If so, you may have considered:

• Staying local and exploring what your city has to offer 
• Driving instead of flying 
• Packing your own food  in a cooler rather than buying it along the way (remember snacks , too)
• Finding a campground  or staying with friends/family to save on lodging
• Going on a service trip instead 

Choosing a less expensive alternative can still be just the getaway you need to come back to school refreshed and ready to finish out the year strong. Plus, a lot of times, it's more about the trip with good friends than the actual destination.

You tell me: Is a big spring break trip still the plan for you? And if you are planning an inexpensive alternative, share your plans.