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Staci

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True story time.

Last week I got an email from a friend and former Wells Fargo colleague, who'd had an interesting experience at her local drugstore:

I had my Wells Fargo jacket on in Walgreens  today and this kid asked me, out of the blue, "How do I get credit, if I don't have any?" I was kind of taken aback for a moment — do I look like a lady who knows about credit? And then he said, "Well, don't you work at Wells Fargo?"

So we started this strange conversation about how he was going to school and needed to get a loan, and couldn't build up his credit because he didn't have any, and because he didn't have any history they wouldn't give him any credit. I didn't know what to say. I kind of wanted to run out of the store. But I told him I would check into it for him.

Gotta give this kid props for walking up to a total stranger and asking for credit advice!

And at the same time, I'm thinking, this poor kid — he clearly hasn't received any credit education at home or at school, so he has to ask a total stranger!

What makes this story particularly timely is that today is Get Smart About Credit Day.  Every October, the American Bankers Association hosts this initiative to educate consumers and students about credit. Given the current economic environment — where credit is harder to come by — these efforts are more important than ever.

Fortunately, if you want to get smart about credit, you don't have to go to the drugstore. Stay put and check out some of these resources Wells Fargo offers:

• Smarter Credit Center
• Credit Education
• Student Credit Education
• Hands on Banking financial education program 

And don't forget: By law, you're entitled to one free credit report every year. 

So, what credit questions can we answer for you?

Delenie

I'm a college student, and I think it's never too early to start establishing your credit. In fact, it is key to build a good credit history in preparation for the future when you are looking to take out a loan to finance a car or a home. Employers may check your credit rating to get a sense of what kind of person they are hiring, so a good rating could project a positive image and take you a long way.

As for college students who are constantly looking for an apartment to rent, landlords may favor you because it shows that you will be more likely to pay your rent on time.

Recently, we received a comment from reader Jeff on guest blogger Chelsea's post about debit cards:

Our son is off to college this fall, and he's never had a credit card. Would you suggest that we help him apply for a credit card in his name and a small ($500) credit limit, or should we give him our credit card to use?

This was a particularly timely question, as I've just taken off my own credit card training wheels. 

See, for the last six months, I've had a joint credit card account with my mom to build my credit history. To avoid overspending and to prove to my mom that I was an accountable adult, we agreed that I would only use the credit card on big-ticket items since I already had a debit card for everyday purchases.

Another ground rule we set was that I would pay off the balance in full each month. This reassured her and gave me the opportunity to familiarize myself with the billing cycle and payment process.

Plus, I've learned a lot about credit and financial literacy while interning here at Wells Fargo this summer. That, combined with my mom's guidance, gave me the confidence to take off my training wheels and fly solo. I did some research on which credit card was right for me, applied, and qualified on my own! Now I just need to make sure I continue applying what I've learned over the last six months to build my credit responsibly.

What do you think of this training wheels approach to getting your first credit card? Would it work for you?

Barbara

We all strive to be above average in some of the things we do. Scholars are hoping to surpass the average grades, athletes are striving for higher than average statistics, you get the picture.

Yet we tend to settle on being average in other arenas. And, yes, sometimes it's just fine to run with the pack as just your average Joe or Jane.  But there is one area that you should never find comfort in being average — your finances.

Why not? I can tell you from personal experience that finding comfort in being average can come back to bite you!

When I graduated from college, a little over $2,000 on a college credit card followed me into the real world. Now for someone who had a scholarship to cover college expenses that seems a bit high, right?

Well, here's the deal. Looking into some credit card facts  I kept hearing over and over that the average college student graduates with over $2,000 in credit card debt. So I thought, "What the heck?" If my counterparts are dealing with the same situation, I can charge a few things, too.

However, when we get stuck thinking that the debt is inevitable, we become less conscious of how much we are spending on things we don't really need. Part of that $2,000 on my credit card was for an iPod, and be sure that I whipped out the plastic for a pair of shoes or two (or three...).

So in the end, thinking average college debt was OK helped me develop some pretty bad spending habits. And unfortunately, those habits stuck with me until I started working for a bank and talking about financial education!

I challenge you to be better than average when it comes to your finances — both during college and after. Think twice about charging that sweatshirt at the campus bookstore. Resist ordering a pizza for dinner when you could use your pre-paid meal plan at the campus cafeteria.

Don't fall into the average trap with your student loans, either (the average for student loan debt is almost $20,000 ). Consider a part-time job to supplement your living expenses rather than taking out more student loans. Pay your interest during school to avoid capitalization.

Each tiny step will put you leaps and bounds in front of the students who settle for "average."

Barbara

We all make mistakes, right? And whether your financial mistakes are minor (going $3.00 over budget for that fancy coffee) or major (defaulting on your student loans ), you must learn from your mistakes and you must take steps to correct those mistakes and lessen their impact.

So, let's talk about the sticky situations some of you may be in and how you can take action to fix your credit. I'll also throw in a couple that would be good for readers who have decent credit but would like to improve their situation.

Just like with building your credit, the first thing to do when fixing negative credit is looking at your credit report and credit score. Once you have a good picture of where you stand, you'll know what issues you need to address first.

• Get your accounts current. If there is any credit you've let slip past due, you need to get back on schedule. This goes for your utilities in addition to loans and lines of credit.
• Correct any credit report discrepancies. Check out what you should focus on fixing in #6 and #7 of this MSN Money article. 
• Work with your lender. Sometimes lenders are willing to work with you to establish a payment plan to bring your debts out of delinquency. It's in your best interest to develop a plan with your lender rather than have them send your debts to a collection agency.
• Pay down your credit card debt. Because part of your credit score is based on how much of your credit limit you're using, it's best to keep the percentage of debt relatively low to the available credit. And remember the caveat I mentioned in my last post: the amount reported is based on your statement, so try to pay what you can off before the statement is generated.
• Don't lower your limits or close accounts. By lowering credit limits or closing accounts, you could hurt your credit because you'll have less available credit and therefore a higher debt-to-credit limit ratio. Plus, it may jeopardize your length of credit. Usually, you should keep the first credit account you established open to show a longer credit history.
• Try to avoid frequent moves and job jumping. By staying in the same home or job, you're showing stability. Of course, you shouldn't stay in a job or location that isn't working for you, but some lenders like to see constancy in those two arenas.
• Pay on time. Even just one late payment can be devastating to your credit score. You can set up automatic payments or use online bill pay to help keep you on track.

Well, folks, that wraps up our two-week credit series. What other credit questions can we help you with?

Barbara

Now that we've talked about the ways your credit is reported and scored, it's time to delve into what you can do about your credit situation.

First thing's first. If you haven't already done so, you need to assess your situation through your credit report and credit score. You may already be building credit and not realize it. If you're starting without much of a credit history, there are a couple things to focus on right away that can help to build your credit.

• Put money in the bank. Start with the basics by opening up checking and savings accounts. If you've already got them, fantastic. Just by having those two simple accounts you're seen as more financially stable.
• Pay on time, always, for everything. Whether it's paying the bill right when you get it, setting up automatic payments through a lender, or using online bill pay, find a system that works for you so you never make a late payment. This goes for your credit accounts, utility bills, rent, and whatever else requires a regular payment.
• Apply for credit. If you're going to school and took out a student loan, you're already on your way! If you didn't have to take out student loans or want to diversify your credit (something that plays into your score), you can also apply for a student credit card. Make sure that the credit you do establish will be reported to the credit bureaus (remember those are Equifax, Experian and TransUnion). Your account has to be reported in order for it to help you build your credit history.
• Choose a different type of credit. For some people, it may be difficult to secure traditional types of credit without an established credit history. Those folks can consider opening a retail credit card, which are generally easier to get. Just remember not to go crazy. Every new account you apply for will appear as an inquiry on your credit report and affect your credit score. Another option is a secured credit card, where you deposit money into a bank account to guarantee repayment for your credit card's limit.
• Use your credit. Yes, you should be using your credit card  to build your credit, but don't charge more than you can afford to pay off each month. That way, you still have the benefit of building credit, but don't have to worry about using too much of your credit limit (remember that's also a consideration in calculating your score).  There is one caveat you want to remember, though. The balance that's reported to the credit bureaus is the closing balance on your statement. So even if you pay your balance in full each month, you still may appear to have a high debt-to-credit limit ratio. If you're using your card to get rewards and racking up high balances, it's best to pay that down a bit before your statement is generated and the balance reported.

Have any of you been working to establish your credit? If so, share what steps you've taken.

If you're dealing with some negative credit issues, stay tuned. My next post will wrap up our series on credit with some thoughts on how to start repairing your credit.

Cheryl

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.

Staci

Happy 2009! Have you made any New Year's resolutions? 

I'm not a particularly successful resolution-keeper. Last year, I vowed to eat healthier, and for six weeks it was nothing but oatmeal for breakfast, salads for lunch, and Lean Cuisine®  for dinner. By the time Valentine's Day rolled around, I felt so deprived that I consumed a two-pound box of See's Candies®  in one sitting.

All bets — and subsequently, all resolutions — were off.

Looking back on it, I know my resolution was too general — not to mention highly unrealistic! I'm guessing that many resolution-makers find themselves in similar situations.

Depending on what stage you are in your student life — soon-to-be-student, current student, recent graduate — here are a couple of specific, achievable New Year's resolutions you could adopt in 2009:

1. Apply for at least one scholarship. Remember, free money for college means less money you'll have to borrow, and plenty of scholarships are out there for those willing to do a little work. Find one that's right for you by checking with your high school guidance counselor, your college financial aid office, your employer (or your parents' employer), or a scholarship search.

2. Before you apply, read the fine print. Know exactly what you're getting into before you sign a credit card application or a student loan promissory note, because your signature indicates that you agree to the terms and conditions. Pay attention to interest rates, fees, grace periods, and repayment periods. If you don't understand anything, ask — before you sign.

3. Make an extra student loan payment. Student loans don't have prepayment penalties. At least once this year, scrounge up enough cash to throw an extra $50 at one of your student loans, preferably the one with the highest interest rate. Just be sure to communicate with your lender and let them know exactly which loan you want the extra payment applied to.

My one resolution for 2009? Not to eat an entire box of See's Candies in one sitting. Sounds pretty doable, right?