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College Students and Recent Grads

College Grads Can Get an A+ Credit Score

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Students throwing graduation hats

Hello Graduate –

The next few months will be both exhilarating and painful. You’ll miss your friends, the ease of living in a college bubble and eventually look back nostalgically on some of those all-nighters. But instead of staying in a phase of arrested development, you’ll be able to become truly independent, establish a career, perhaps move to a new city and build a foundation for the rest of your life. Part of the foundation of life revolves around handling your finances.

Post-graduation you’ll be entering what is obnoxiously referred to as “the real world,” assuming you don’t seek protection in your parents’ basement. Finding the basic necessity of shelter will be high on your priority list. It doesn’t matter if you plan to rent or buy, your credit history and score will dictate your future.

If you spent college being financially responsible with behaviors like using a credit card and always paying off the balance or perhaps you even starting to pay off your student loans, then your credit score will probably be good (680 – 749) to excellent (750+).

Quick credit score recap

Credit scores help lenders assess your “risk factor” – like evaluating the consequences of going out drinking the night before a final. The lower your credit score, the more likely they are to think you’ll default on a loan, make late payments or jet off to a foreign country and assume a new identity. A high score (or one above 680) indicates trustworthiness.

Fair Issac and Company (or FICO) – who owns the definition and scores credit – use five factors to create your credit score:

  • Payment history (35%): do you make payments on time? Missed payments can crush your credit score quickly

  • Amounts owed (30%): the more debt you have, the lower your score. But even more important than the total amount you owe, is the amount you owe in relation to your total credit limit – which is called utilization. If you max out every card you have, you will get punished

  • Length of credit history (15%): the longer you’ve had credit, the better

  • New credit (10%): this looks at how many new accounts you have opened, and many times you have applied for credit.

  • Types of credit used (10%): the more types of credit you have, the better. So, someone who has successfully managed a car loan, a mortgage and a credit card would score better than someone who just managed a credit card successfully.

Why a strong credit score is important

When you want to rent your first place, your future landlord will most likely run your credit report and score. If you’re looking to buy, then your report and score will absolutely be run to determine your mortgage. The credit report shows your financial history including loans and credit cards as well as if you ever defaulted, missed or made a late payment. The credit score helps the landlord easily determine if you would be a good tenant. They’re probably looking for a 680 or higher.

The same goes for anyone who might be giving you a loan, like a car salesman. The higher your score the more negotiating power you bring to the table. If you’re resting in the high 700s then you’ll be able to get lower (aka better) interest rates than your peers in the low 600s or below.

Build your credit score

If you’re starting out with a low or non-existent credit score, don’t worry. We have resources to help you establish and/or build your credit score. We’ve outlined six simple steps below

  1. Get a line of credit – opening a credit card is the simplest way to begin establishing credit history.
  2. Keep your utilization rate low – utilization is the amount of your credit limit you spend each month. Aim to keep your utilization below 30 percent.
  3. Pay in full, and on time, each month – the easiest way to prove you’re responsible is to only charge what you can afford.
  4. Avoid credit card debt – by only charging what you can pay off, you’ll easily avoid the debt trap of a credit card.
  5. Your score will improve and better card options will come – once your score gets above 680, you’ll start getting offers from top-tier credit card companies.
  6. Protect your score – check your credit reports at least once a year for accuracy and signs of fraud.

For more details, visit our building your credit section.

Have questions about handling your financial life after college? Ask us in the comment section or email us at [email protected] You can always get social with us on Twitter, Facebook and Google+.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at [email protected]

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Eliminating Fees

Do You Have the Right Overdraft Protection?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

doineedoverdraftprotection-lg

Unless you keep your money in a tin can underneath your bed – which we don’t advise – you’re subjected to the fine print policies of whatever financial institution you trust with your assets. Unfortunately, the banks sometimes come off as something more akin to Tony Soprano than a knight guarding your wealth.

The restructuring of transactions (or “high to low processing” as the banks call it) is one way to force you into paying more fees if and when you go overdraft.

Be sure to read What are Overdraft Fees?

I thought the government passed a law to protect me?

Yes, the government did pass Regulation E, but most of the old tricks remain in place and high to low ordering is legal. Some of the biggest banks stopped the practice in an attempt to appease regulators, but ironically smaller banks are the ones most likely to still be reordering your transactions.

The protection of Regulation E is related to debit and ATM transactions.  You have the right to opt out of overdraft for debit and ATM.  If you opt out, then your transaction would be declined and you would not be paying the overdraft fee for going into negative numbers. But remember that some banks still charge you a NSF (non-sufficient fund) fee. But for checks, electronic transactions (which include using your debit card as a credit card) and bank fees, the practice remains exactly as it was.

Can I enroll in protection?

Yes, you can.

Protection means that you link an account (usually a savings account, credit card or line of credit).  If your checking account does not have enough money, then money is transferred from your savings, credit card or line of credit.

This doesn’t save you from fees though. Banks will typically charge a transfer fee to the checking account. The fee is usually somewhere between $10 to $12 per day that you have an overdraft.

If you link your savings account, then it is very straightforward. You pay the bank to transfer money from your savings account to your checking account. You’re still forking over $10 to $12 for something that costs the bank fractions of a cent.

If you link a credit card, the story is more complex. Most credit cards will charge you a cash advance fee, and will start charging interest at the cash advance rate from Day 1. That rate is usually close to 30%.

Linking a line of credit is usually the cheapest way to borrow. Typically there is no fee on the line of credit, and the interest rates tend to be lower. Not surprisingly, lots of credit unions offer a line of credit. Of the Big 4 banks, only Citibank offer a line of credit.

Overdraft protection doesn’t protect from fees

Back to the Tony Soprano reference, buying protection doesn’t entirely protect you. Even if you enroll in overdraft protection, you can still be charged an Overdraft or NSF fee. If you link your savings account, and there is not enough money in the savings account, then you would be charged an NSF or Overdraft fee.

Is this fair?

We don’t think so. But our job is to help you understand the rules and find the best way to avoid fees.

Find out how certain banks are starting help consumers

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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College Students and Recent Grads

Use College to Rock Your Financial Life

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

college_students11

Dear College Student –

I envy you. Not for the football games, the keg stands nor the ability to arrange your schedule for constant three-day weekends. Okay, I miss that last one. But I primarily envy you because you have a simple advantage when it comes to finances.

Time.

Over the course of your college career, you’ll make a lot of decisions that will impact the course of your life. Some of them will be academic, a few will be social, but plenty will be financial.

Before you even entered the hallowed halls of your university, you may have signed a dotted line that put your young financial life into the red. Student loans are major issue for college students – more so than actually picking a major – but we’re here to help to minimize all other debt and maximize your financial health. School may be preparing you for getting a job, but here at MagnifyMoney we want to educate you on what comes after.

Step One: Build Credit History

Grades don’t stop after you hand in your final exam, in fact you’re going to be graded your entire life. A credit score is how a lender will determine how risky you are. If you’re looking to buy a car, rent an apartment or apply for will a mortgage (lucky you), then your credit score will be pulled. A high score can help you edge out other applicants for an apartment or give you bargaining power for a lower interest-rate on a loan. The lower your score, the risker you’re going to appear.

Even your employer could end up pulling a credit report to assess your responsibility. A credit report doesn’t contain your score, but will show if you’ve been late making payments, defaulted on a loan or even filed bankruptcy.

Fortunately, you have four years of college to be building your credit history so you graduate summa cum laude – with a high credit score and impeccable credit report. If you’ve taken out student loans in your name, then you’ve already started the process of establishing credit history. However, we still recommend that you consider getting a credit card. Part of your credit score is determined by the types of credit you have as well as payment history.

A credit card is a simple way to establish credit history, but you must be using it responsibly.

  • Pay off your balance in full each month – carrying a balance just costs you more money

  • Keep your utilization rate low – only use 30% of your available credit. So, if you have $500 a month, then don’t spend more than $150 per month. If you really want an A+ in credit card use, try just spending $5 a month and have an insanely low utilization, which translates to a high credit score.

We have a list of college credit cards on our Cash Back Rewards page. You can also consider applying for a secured card, which helps you establish credit history by putting down a deposit of your own money to prove your responsibility.

Read more about building your credit history here

Step Two: Avoid Credit Card Debt

Opening up a credit card can be like walking into a frat party when you’re trying to avoid drinking. It opens the door to a whole lot of temptation, which is why it’s incredibly important that you use the credit card to only purchase items within your budget. Using it as a tool to buy expensive clothes, get the latest gadgets and open up a tab at the bar for all your friends will land you in a lot of financial pain.

Credit card companies may try to entice you to spend more by offering sign-on bonuses or cash back rewards. Don’t let this fool you into spending more than you can afford. If you get into debt, then you’ll be paying a lot more than you made from the sign-on bonus or cash back rewards. Plus, the interest rates on college credit cards are usually insanely high and that means debt at a high interest rate.

The simplest way to avoid consumer debt is to pay your balance off, in full, each month. Carrying a balance doesn’t help your credit score; it simply incurs interest you have to pay off.

Step Three: Consider an Internet Bank

You’re part of a generation reared on the rise of technology. You already know “there’s an app for that” – so why waste your time and money by banking at a traditional brick-and-mortar bank branch?

Putting your money into a savings and/or checking account is essentially giving the bank a loan. They are able to lend your money to someone else at a high interest rate while paying you less than 1%. Then they have the audacity to charge you heinous amounts of money if you go overdraft (the act of making a transaction without enough money in your account).

Now, Internet banking can help you save more money and there are, of course, apps for that.

Internet banks offer:

  • Higher interest rates on your savings accounts

  • Lower fees on your checking account

  • Overdraft fee protection and reimburse you for ATM fees

  • The ability to cash checks with your smartphone (or a scanner)

Internet banks are FDIC Insured just your brick-and-mortar bank, so they’re entirely safe.

Read more about Internet Banking here

Graduate with a Degree and Financial Competence

The next four years of your life are about so much more than good grades, parties and your cute study partner. They’re an opportunity to do the incredibly simple work that builds a foundation to pass a life-long exam. Taking the time to understand your financial situation in college will pay huge dividends once you graduate. Unless you do actually just want to live in Mom and Dad’s basement because you can’t afford anything and no landlord will take you without a decent credit score.

Got questions about setting up your financial life? Email us at [email protected] or tweet @MagnifyMoney

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at [email protected]

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