What is the Starting Credit Score?

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Starting Credit Score

Having a credit score can have many benefits.  Wait, having a good or great credit score can have many benefits.  As we go through life, credit becomes an essential tool for an individual to progress through society.  You can use credit to purchase everyday items, a car or a house.  Without credit, some of the essential purchases we rely on to carry us through our lives every day would be unavailable, such as a car for transportation to and from work.  Having a credit score and a good one at that can allow you to get the best deal on large purchases and also helps create a financially responsible person.  But just how does one get a starting credit score, and where do you begin?  I will lay out some of the easiest way to start down the path of a good credit score.

Step 1 to getting a starting credit score:

The first thing you need to do to get a starting credit score is simply to get credit.  The easiest way to do this that I recommend is by opening up a $0 annual fee credit card.  Your monthly limit won’t be all that much, most likely less than $1000.  Commit to making a couple easy purchases on it every month and paying it off at its due date.  For example, a couple tanks of gas or a visit to the grocery store is all it takes to start building your credit.  It is vital to pay off the full amount after a month’s time before the card’s due date

Step 2 to getting a starting credit score:

The second step to building a starting credit score is to continue purchases with your credit card and meet the monthly payment date, along with exploring an additional option of building your score.  If you rent an apartment, sometimes the apartment complex allows you to report your on-time payments to credit agencies.  Additionally, if you have student loans you are paying back, this also will show up on one’s credit report.  Time is a big factor in your credit score.  It usually takes at least six months for you to build your first credit score.  Image result for credit score rangeIf you make on-time payments in full, you can expect a score anywhere in the range of 675 to 740.

Step 3 to getting a starting credit score:

By step 3, you should already have shown a positive pattern to creditors through making payments on a timely manner.  The most important part of this step is just to be patient.  Building a good or great credit score takes time.  Two of the bigger factors that impact your credit score are the length of time you have had credit and the number of accounts you have that required credit.  Chances are as you start building your credit both of these factors won’t be too much in your favor.

In summary, there are many benefits to building a good credit score, but it all boils down to a few simple factors.  Firstly, you need to begin building credit through a $0 annual fee credit card, student loan repayment, etc.  Secondly, you MUST make your full payments and make them ON TIME.  Finally, you need to be patient.  It takes time to build a great credit score, but if you budget correctly and make sure not to spend above your income level then a great score will eventually come.

Budgeting With Credit Card Debt

I recently spoke with an individual who was excited to begin his budget.  He downloaded the spreadsheet available on my site and asked me to look over it.  Everything looked good except for one thing I noted.  This individual had a category as follows:

Credit Card Payment (minimum)

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This shocked me for a number of reasons.  First and foremost, the minimum part that was included.  Secondly, paying off your credit cards is not an expense.  For example, if you go to the grocery store and spend $50.00 on groceries but apply the charge to your credit card, then your budget should reflect a $50.00 purchase on groceries.  The credit card is simply a means to pay for it.  Finally, I recognized that this individual had credit card debt, and he assumed paying off in minimum installments would eliminate it.  Yes, theoretically, as long as no further debt was incurred, but it would take a while.

This ultimately led me to the following conclusion.  This individual had a significant amount of money remaining in their budget every month.  I advised him that if I was in his situation I would do the following:

  1. Make sure I am able to cover all of my necessary expenses in the budget.  This would include rent, gas, food, student loans, etc.
  2. See where some expenses can be cut.  Bringing his lunch to work versus going out to eat might be the smartest financial decision until he gets his credit card debt under control.
  3. Use any extra money at the end of the month to pay off the remaining balance on the credit card.  Credit cards are notorious for having extremely high interest rates.  The quicker you tackle this type of debt, the more you save.
  4. Set a goal for paying off the credit card debt.  We agreed by the end of the calendar year.  Once the debt is paid off we could redo the budget and include categories for savings, retirement, and other financial goals.

Credit card debt can be a nasty thing, but a budgeting approach to handling it can make your financial life much better.  Use a budget to pay off your debt if you have any, then you will be able to create additional space to begin planning for your financial future more aggressively.

 

Budget Smart, Invest Wise

Social Security and the 2016 Presidential Campaign

As you should know, we are all in the midst of debates among both Democrats and Republicans for the 2016 Presidential candidacy.  While there are many social issues these candidates have discussed, there are also a few fiscal issues discussed as well.

The majority of the fiscal issues stem around America’s growing debt burden (which is now over $18 trillion).  However, another topic that has taken somewhat of a backseat, but is still discussed in these debates is the topic of social security.

Social Security Proposals Show Shifting Ground in Debate

Some candidates want to push back the retirement age, others would like to cut the benefits paid out by the program.  One suggests raising the cap on taxable income for social security.  To view each candidates stance, CLICK HERE.

Americans who are retired or are planning on retiring in the future and relying on social security income to help fund that retirement should be assured that this topic has relevancy to these debates.  Although we cannot predict who the next president will be, or what ultimately will happen to the social security program, we can do our best to make sure that we are well off no matter what is decided.

Having IRA’s, pensions, and 401k plans are ways to ensure a safe retirement.  Maxing out contributions to these retirement vehicles where applicable can give one peace of mind in the future.  What will happen with social security in the next 20, 30, or 50 years?  Nobody knows.  However, a broad retirement plan can help lessen the stress and worry about what might occur.

Budget Smart, Invest Wise

A Spooky Statistic

As we inch ever closer to another Halloween evening there is a spooky statistic that I recently read about.  Business Insider recently published an article that today’s college graduate can expect to retire at age 75.  Yes, age 75, which was coincidentally the average life span of an American just 24 years ago.

Why age 75?

High student debt, rising rents, and social security viability are just a few of the reasons.

The average student loan debt sits just above $35,000.  As someone who graduated a mere 3.5 years ago who had just over $30,000, I can attest that a large portion of one’s income goes to paying down that debt.  And when you use the majority of your income to pay down debt what does that do?  Prevents one from saving for retirement.  Prevents one from saving to buy a house, thus subjecting oneself to the ever-increasing rents throughout the country.

By the time today’s graduating seniors look to retire, life expectancy could very easily be well into the 90’s.  Fifteen or so years of retirement might seem like a plausible plan for many.  There are ways to ensure that you don’t have to wait until 75 for retirement though.  It starts with budgeting, followed by saving and paying down debt.  Finally, it is followed up with living within your means and not succumbing to societal pressures to purchase all of the nice things.

Don’t be a part of the spooky statistic.

Budget Smart, Invest Wise

Video: How Even the Rich Go Broke

How can you have $400 million to your name and go broke?  I don’t know, ask Mike Tyson.  Star athletes going broke is not something new.  It has been happening ever since their paychecks began growing to astronomical amounts.  Although many of us will never have anywhere near the money that these individuals did, there is still a good lesson to learn from their mistakes.

They spent too much on things they didn’t need.  They didn’t budget.

They had bad investment advice.  Not one of them called Vanguard or Fidelity and asked a Financial Advisor what they should do with their money.

As the new DirectTV commercials go: “Don’t be like this Peyton Manning”.  “Don’t be like this Rob Lowe”.

Don’t be like these athletes.

Budget Smart, Invest Wise

 

Student Loans: Grace Period, Waste Period

I spoke with my sister who just recently graduated with student loan debt.  She asked me, “How do I start paying back my loans?”  I told her, I don’t know.

If you have recently graduated from college then chance are you have student loans to pay back.  There is student loan exiting counselling you must go through and then it seems like you’re all finished.

This is exactly what I did.  After I graduated I went through loan counselling sometime during the late summer of 2012.  And then… Nothing.  I don’t even believe I received an email until almost six months later when it was time to start paying back my loans.  My grace period was coming to an end.

If you take out a student loan through your college or university you will most likely have a grace period of six months.  This is so you can have time to “Get your finances in order”.  I assume these loan company figure if you were this easy to get into debt it was the least they could do.

The bad part about this “Grace Period” is that interest is accruing during the six months you aren’t paying back your loans.  The loan companies try their best to hide this from you and make it as difficult as possible to figure out how to pay back your loans before the period is over.

Step 1: Log on to https://studentaid.ed.gov/sa/?login=true and find out who your student loan provider is.

Step 2: Create an online account with your provider(s) and set up your account information.

Step 3: Begin paying back your loans before the grace period ends to limit the amount of interest you will pay over the life of the loan.

 

Budget Smart, Invest Wise

Video: Step by Step Guide to Creating a Monthly Budget

I have discussed the importance of creating a monthly budget on many previous posts.  This post is for all of you visual learners out there who have not yet created your own personal monthly budget.  Rachel’s video illustrates just how easy it is to create your very own budget.

http://www.youtube.com/watch?v=Rs8P0Eh7Zbc

Budget Smart, Invest Wise

Motivational Video: Getting Your Finances Corrected

Do you have student loan debt?  Any debt?  Have you failed to save for the future?

Suze Orman discusses these points and others in this short video.  Although I disagree with a few of her budgeting comments she makes at the beginning, budgeting is essential to monitor your inflow and outflow of cash, something she does say is extremely important.

Budget Smart, Invest Wise

Student Loans No More

 

It took me a total of 30 months, two and a half years to pay off over $30,000 in student loans, but it has been done.

My student loans were financed out for 10 years, which is typical for these loans.  However, I paid them off in just 2.5 years.  How did I do this?  Dedication, commitment.

It is never easy seeing the majority of your after-tax income go towards something that has already been purchased (tuition) and you don’t see the financial rewards until many years down the road.  Bonuses I would receive were also mostly put towards paying down this debt.

My loans carried a 6.8% interest rate.  It was because of this that I was so adamant on paying them off as soon as possible.  That and the opportunity to put that money into additional investments for my future.

Student loans among recent graduates are at all time highs, and so is the price of college tuition.  I’m glad I got out when I did and don’t have plans to paying for education again.  I can breath a sigh of relief, because I know there are others out there with much more debt they have to repay.

I remember a criminal justice class I took back in college where the professor said that the only two for sure ways to get turned down for the FBI were if you had a felony or if you defaulted on a student loan.  I’m not sure if that is 100% true, but I do still preach that fact to others today as if it is.

Debt is a big burden no matter what kind of debt it is.  Most young people and college students don’t understand what they are getting themselves into when they enter college.  They don’t realize that the thousands and hundreds of thousands of dollars they borrowed for their education will have to be eventually re-payed with their salaries.

However, with all that being said, I am glad I went to college.  I wouldn’t have had the career opportunities or money had I decided not to go, but that was never an option.  Student loans are a fact that you have to accept if you are already entrenched in the college life.  For those of you graduating, there are steps you can take to help get yourself off to the best financial start possible.  If you are interested in getting your financial life off to the right start then email me for a Financial Foundation Consultation.  I will go over anything you need me to: budgeting, debt burden, buying a house, where to invest, etc.  Consultations can be done over the phone or via webcam.  If interested email me at johnwsteinert@gmail.com

Budget Smart, Invest Wise

9 Financial Commandments for 20 Year Olds

Getting your finances off to a stellar start is easier said than done.  It is critical if you want to begin on the right side of the financial track.  I’ve discussed many of these commandments in previous posts; however, Kathleen Elkins from Business Insider lays out just what you need to do to take control of your finances early in your working career.

Try and see how all nine apply in your current life.  Don’t feel obligated to make a move on all of them at once.  Create a plan.  Tackle one of these commandments a month.  If you follow that plan you will be ready to start 2016 with a great financial outlook.

http://www.businessinsider.com/worst-money-mistakes-millennials-2015-6

Budget Smart, Invest Wise