We continue our saving tons of money series this week. Now we shift our attention towards your credit score. Do you know how much money that you can save with a high credit score? Do you realize how important your credit score is? I certainly didn’t know how crucial a credit score is until I saw the breakdown of one and how it affects interest rates on loans when I applied for a home mortgage.

Let’s recap what your credit score is made up of:

• Payment History – 35%
• Total Amounts Owed – 30%
• Length of Credit History – 15%
• New Credit – 10%
• Type of Credit in Use – 10%

Now that we see what makes up a credit score, how can you save tons of money by taking care of your credit score?

Lower interest rates.

The higher your credit score, the less money that you’ll spend on interest. The logic here is fairly simple. Having a credit score means that you essentially have a history of paying money back on time and making wise financial decisions. This will deem you as being credit worthy by the bank. No lender will want to loan money to someone that has a poor credit history and is known for not making payments on time.

Higher credit score= lower interest rates= less money spent on interest.

Less money wasted on interest.

With a lower interest rate, you won’t have to spend as much money on your home mortgage and car loans in the future. This means more money in your pocket. You really don’t want to get stuck with an absurd interest rate just because you made some poor financial choices in your 20s. You’re ready this because you want to know how to save tons of money. Right?

No need for a co-signor.

Do you really want to ask a family member to be a co-signer for you? I personally hate asking for any favours at all. With a low credit score, you might be stuck asking a family member for help when it comes to getting a loan. This could lead to awkwardness and you might not even find someone willing to sign for you. What will you do then? What if you can’t buy that new car because you don’t have a co-signor?

That’s why a high credit score can save you lots of money in the long run.

Alright so I can save so much money with a solid score. What’s nest? What can I do to start building your credit score in college?

Sign up for a credit card.

I recommend that you grab yourself a basic credit card with a small limit to get started. Now I know that there are many pros and cons to a credit card in college. The reality is that you should get a small limit so that you can handle yourself if you do happen to max out your card.

Pay off the balance.

You need to get into the habit of paying off your balance religiously. Now we can get into excuses but I’m not here for that. I’m a firm believer in paying off your balance. If you don’t have the money in your checking account, then you clearly are not responsible yet for a credit card.

Automate payments.

It will help you build a credit history if you automate our fixed expenses to your card and pay it off on time. My gym membership, utility bills, insurance, and cell phone all go towards my credit card. This has helped me build my credit history, while simplifying my financial life.

The only caveat is that you still need to check your bills for any discrepancies. No excuses!

Over time if you build up your credit score, you can save yourself tons of money in the long run. Have you been working towards improving your credit history? Please share your experiences with us here.

Check out the other article in the series:

The Power of Passive Savings.
You Need to Pay Yourself First.

(photo credit: mint_jinny)

It’s Tuesday morning and today is the last post in our Credit Card Management Series. During our Credit Card Management Series we have discussed The Myths About The Amex Black Card, Good Credit Cards for College Students, Paying 0% Interest on Your Credit Cards. We have reviewed the Citi Thank You Preferred Card, and the TD Bank Payment Plus Card.  We have learned about Prepaid Credit Cards, The Best Solutions to Credit Card Debt, and if Credit Cards are Good or Bad.          

Today we are going to discuss an unfortunate side effect of having credit cards.  Unfortunately every single time we apply for a new credit card, or we swipe our existing credit card, we take the risk of becoming a victim of identity fraud.  If we lose our wallet there is a risk that someone will find our wallet and gain access to our credit cards along with all of our personal information.

 HSBC is currently featuring an article on their website YourMoneyCounts.com that discusses ways to prevent Identity Theft and what to do if our identity is ever stolen.

How Can We Prevent Identity Theft?

Safeguard Your Personal Information.  It is important to keep a close eye on all of our personal information to prevent identity theft.  Ways to safeguard our personal information include having our monthly bills delivered online instead of having a paper statement delivered by the mail.  Accessing our account information online ensures that our information remains confidential, and the risk of anyone else finding our information is minimized.

Review and Shred unnecessary Documents.  We should shred all unwanted personal information including bills, statements, and other confidential information.  We should never throw out personal information in the garbage.

Be Safe While Online.  We should never use a shared computer to access our personal information such as our PayPal account, our Online Banking, and our Credit Card information.  Whenever we access our personal account information online we should not have other websites open such as Face Book and Twitter.  There is always a risk that our information can be transmitted.

Keep Organized.  If you do keep paper copies of personal information, statements, and receipts it is best to keep them safely organized in a filing cabinet or binder.  If we keep our information neatly organized we have less of a chance to lose it.

What Should We Do If We Become a Victim of Identity Theft?

Contact all of our Financial Institutions.  The first thing we should do if we become a victim of identity theft is to contact all of our financial institutions and credit card companies.  We should cancel all of our debit and credit cards immediately, as well as put a freeze on our accounts until the cards are replaced.

Contact our Credit Bureaus.  The second thing we should do if we become a victim of identity theft is contact all of the credit bureau companies to flag our accounts in case someone (other than us) tries to apply for credit or open an account in our name.  The three national credit bureaus are Trans Union, Equifax, and Experian.  If we flag our credit bureau the companies will alert us any time that someone applies for credit in our name.

We should file a police report.  When we call our credit card companies or financial institutions to report our credit cards lost and stolen they will ask us if we have filed a police report and they will ask for the police report number.

We should also file a complaint with the FTC (Federal Trade Commission).  The FTC maintains a database which is used to keep track of identity theft cases and prosecute identity thieves.

Photo by CarbonNYC

Good Morning Green Panda. During our Credit Card Management Series we have discussed several different aspects of Credit Cards such as The Myths About The Amex Black Card, Good Credit Cards for College Students, and Paying 0% Interest on Your Credit Cards. We have learned about Prepaid Credit Cards, The Best Solutions to Credit Card Debt, and if Credit Cards are Good or Bad.  We have also reviewed the Citi Thank You Preferred Card, and the TD Bank Payment Plus Card.  However, none of this information matters if our credit card is not approved.

How to Get Your Credit Card Approved

Today we are going to discuss how to get your credit card approved when applying for your first credit card.  If we have never had a credit card, our financial institution will still perform a credit check to get our credit card approved.  Any other bills that we pay on a monthly basis such as our cell phone bill, our cable bill, or our monthly hydro bill are regularly reported to the credit bureau.  It is very important that we pay all of our monthly bills on time, because this will determine if our credit card is approved.

If we have never been granted credit in the form of a credit card, a student loan, or a cell phone we may be required to make a deposit to have our credit card approved.  This is also true for a new cell phone contract, or if we are registering with a cable company for the first time for cable or internet services.  Our deposit is for security purposes in case we don’t have the money to pay our bill.  Our security deposit is returned to us once our account is closed or our contract is terminated.

Pre Approved Credit Cards

If we have established a good credit history we may receive offers in the mail for Pre Approved Credit Cards. A credit card Pre Approval simply means that we have met some preliminary criteria as established by our financial institution.  Pre approval criteria can include our age, our annual income, and the current amount of deposits that we currently hold with that financial institution.

A Credit Card Pre Approval is not based on our credit history and therefore a Pre Approval is not a guarantee that our Credit Card will be approved.  If you have ever received a Credit Card Pre Approval offer letter in the mail I suggest that you read the fine print.  If you do, you will notice that it states something similar to “this offer is conditional based upon on a successful credit check verification.” 

If we sign the Pre Approval offer and return it to our financial institution they will perform a credit check.  When we sign the Pre Approval offer we are actually giving our consent for our financial institution to run a credit check. 

Once our Credit Card is approved, we will have to sign again to accept the terms and conditions of our Credit Card.

Photo by Striatic

You filled out all of the necessary forms, everything went through, and now you have your first and very own credit card. Congratulations. If you make your payments on time, a credit card can technically be a free short term loan. A credit card can also spell financial disaster for college students that aren’t prepared to use it responsibly. However, since you’re here reading this article, I’m going to assume that you’re a responsible young person that’s looking to use a credit card to build your credit score.

Before I share tips with you on how to keep a solid credit score in college, I wanted to explain to you the importance of a credit score:

It’s tangible proof of your responsibility level. Potential employers, Landlords, and Lenders will all check your credit score to see how responsible you are. Potential employers may use it as a filtering system. Landlords will simply not want to rent out a unit to a young person that has a poor credit score because this usually means a failure to make payments on time. Lenders (from cars to homes) will either charge you an extremely high interest rate (costing you lots of money) or not loan you the money at all.

Basically, a poor credit score can cost you a job, hurt your chances of finding a place to rent, and limit your options when it comes to a home or auto loan. Do you really want that to happen? This is why you need to pat yourself on the back right now and share this article with as many of your friends as possible. You’re on your way to being a responsible credit card user.

Okay now that you understand why your credit score is important, what exactly is your credit score made up of?

• 35% Payment history. This is pretty much your ability to make payments on time.
• 30% Amounts owed. How much money you owe compared to how much credit you have available to you.
• 15% Length of history. How long have you had your credit card for? How long have you been paying your credit card balance off?
• 10% New credit. The amount of new credit you have compared to old credit that you’ve had. This is where people argue that closing a credit card can hurt your credit score for the short term.
• 10% Types of credit. This is based on the different types of credit that you have available to you.

The last part of this credit score article is designed to help you use your credit card responsibly so that you can build your credit score through college.

Make credit card payments on time.

You must make all of your credit card payments on time. Now I know that shit happens and life isn’t perfect. You just need to understand that 35% of your credit score is made up of your payment history. Do you really want to hurt your credit score by making a late payment? If you do make a late payment, I urge you to call your credit card provider to find out if the late payment has been reported and if it will affect your credit score.

Automate your payments.

When you’re young, one of the best tips for building your credit score is to make consistent payments on your credit card on time. My favorite tip in this area is to automate your fixed payments to be directly billed to your credit card. I’ve setup my online subscriptions, gym membership, and cell phone to be directly billed to my credit card on a monthly basis. The consistent payment of my credit card has allowed me to build up my credit score through college.

Increase your credit score… when you’re ready!

Since 30% of your credit score is based on amounts owed, then technically the more available credit you have without using it, the more responsible you are. My credit limit is so ridiculously high that I don’t plan on sharing it with anyone anytime soon. When you feel that you’ve got a handle of your credit card, you can ask your credit card provider for an increase in your credit limit. This increase in your credit limit will also allow you to place major purchases on your credit card (group trips, television, etc.).

There you go guys! This comprehensive article should hopefully allow you to build your credit score through college.

Img src: Infusionsoft.

Why is it important to be familiar with them? If you plan on getting mortgage, having a car loan, or even are shopping for car insurance, your credit report and score will most likely be checked. You want to have the best record you can have to get the best interest rate and deals.

Your Credit Reports

Your credit report is basically a record of your history of payments and helps lenders determine your credit worthiness. You technically have 3 credit reports, one with each credit bureau.

Credit Agency Contact Numbers

• Equifax: (800) 685-1111
• Experian: (888) 397-3742
• TransUnion: (800) 888-4213

In theory, they should have the same information, but sometimes you can have inaccuracies in any or all of them.

Get Free Credit Reports

The Federal Trade Commission has one site where you can really get your credit reports for free at annualcreditreport.com. If you do not have Internet access, you can also call 1-877-322-8228 to order your credit reports.

You should at least see if there are any mistakes on your credit report and fix them, as they can lower your credit score or put you in a bad light with lenders.

Your Credit Scores

Your credit score is a number between 300-850 that each of the credit agencies assign based on the information on your credit report. I wouldn’t get too hung up on credit scores, as leach bureau has their own little system. I would just shoot for 720 or higher.

By the way, you can’t get your credit scores with the Annual Credit Report site. They are completely separate. You can either buy your score from the credit agencies or you can use a service like myFICO.

If you want a general idea of your credit score, you may want to check out Credit Karma. It was in the ballpark when I tested it out.

Fixing Your Credit Score

While we don’t exactlyhow Fair Issac calculates your score, we do know what factors they take into account. Here’s how your score is broken down:

• 35% – Paying your bills on time: If you’re late with your payments, not only can you get a late fee charged to you, but after 30 days, it ges reported to the credit bureaus.
• 30% – Debt you owe and the amount of available credit: This measure how much of your lines of credit you are using. If you only have a $200 balance on a $1500 card, that’s better credit score-wise than having $200 balance on a $500 card.
• 15% – Your credit history length: This is basically keeping track of how long you’ve had your accounts. If you’re a new credit card holder, this will naturally improve the longer you have a solid history.
• 10% – New credit applications: A small part of your score is determined by how many accounts you’ve opened up recently.
• 10% -Different Types of Credit: I’m not crazy about this since it encourages several different types of debts. I think the less you have, the better. A mortgage and or a student loan already seems like more than enough debt.

It does take some time for improve your score, but it’s completely doable.

Your Thoughts on Credit Scores and Reports

Have you checked your credit reports recently?