Credit 101 For Teens and For Everyone

Our bankers spend a lot of time in local schools during the spring. We talk to little kids about spending and saving money and to high school kids about topics important to them. As they’re about to venture out on their own we give them an overview of real world money topics like how to open a checking account, how to apply for a loan, and what it takes to build good credit.

Here for You BadgeWe can’t go to the classrooms so we wanted to bring the credit talk to the blog! Since every consumer needs credit for a variety of reasons, this is helpful information for everyone – not just those high school students!

What is a credit score?
A credit score is numerical summary of a person’s credit worthiness. It takes into account several factors including length of credit history, outstanding debt, pursuit of new credit, types of credit in use, and payment history. The higher your score, the better your credit.

Why do I need good credit?
Your credit score will be considered when you apply for a loan or a credit card. Many employers look at your credit as do insurance companies, landlords, and even cell phone companies. In other words, your ability to get a cell phone, rent an apartment, get a credit card, insure your home, start a new job or afford a loan for a car is tied to your use of credit. In the world of borrowing money, someone with excellent credit may qualify for a lower interest rate than a customer with good or acceptable credit. Good credit can literally save a customer hundreds if not thousands of dollars in their lifetime.

How can I improve my credit?
– Pay your bills in full and on time every month.
– Use 25% or less of your available credit. In other words, if your credit
limit is $10,000, carry a no more than $2,500 of debt.
– Maintain steady employment. You will be perceived as being reliable and
better able to pay bills if you are able to hold down a steady job.

What negatively impacts my credit?
– Late or missed payments.
– Using more than 80% of your available credit.
– Bankruptcy.
– Liens or foreclosures.
– Periods of unemployment.
– Too many requests for new lines of credit.

How do I establish good credit and keep it that way?
– Pay your bills, on time every month.
– Open a credit card and pay it off every month, or keep a very low manageable
balance.
– Do not open too many credit cards or credit accounts at one time.
– Avoid using the mantra “I’ll pay it off later” as a crutch for going into
debt for things you cannot afford.
– When it comes to credit cards, only charge things you can afford.
– Only apply for loans where the payment is manageable using your current
income.
– Do not stretch your budget too thin. Ask yourself, could I afford this car
loan if I lost my job or got sick and couldn’t work?

What is a good credit score?
740 – 850           Excellent Credit
680 – 740            Good Credit
620 – 680            Acceptable Credit
550 – 620           Subprime Credit
300 – 550           Poor Credit

Who tracks my credit?
Your use of credit is reported to three major credit reporting agencies: TransUnion, Experian and Equifax. Each time you pay a bill, apply for insurance, change jobs, or exceed your credit card limit, that information becomes part of the permanent record known as your credit report. You are advised to request a free credit report annually through www.annualreport.com. This report is a snapshot of your credit worthiness. It is important review regularly for accuracy.

Talk To Your Teens About Money

Last week we talked about teaching young children about saving and managing money. It tends to be easy when they’re little because you can just tell a young child that saving money is important and that they must do it. But what about your teenagers? They are still kids but are nearing adulthood and all the financial decisions that come with it.

Here are five topics to start with!

Talk About Credit – Teach your kids the difference between good credit and bad credit. Talk to them about the difference between borrowing responsibly to buy a house and spending wildly with a credit card. They will soon be bombarded with offers for shiny new credit cards with enticing offers. Talk to them about how to use credit cards wisely – spend only what they can really afford, pay off the balance every month and pay on time.

Teach teens to use technology for banking, monitoring their credit score and even budgeting!

Teach teens to use technology for banking, monitoring their credit score and even budgeting!

Budgeting – Does your teen have an after school job or an allowance? Talk to them about how to budget those funds and plan for the future. Are they saving for college or for a new car? Are they blowing all their money on new music and fast food? Help them set up a budget for their money by identifying their expenses and savings needs. Then list their income and help them prioritize how to spend and save that income.

Daily Tasks – Involve your teens in household tasks that involve financial decision making. Teach them how to write a check and how to balance a checkbook. Show them around your online bank account, let them schedule your bills through Online Bill Pay and talk about the expensive damage caused by late payments. Take them grocery shopping and explain why you buy the cereal that’s on sale and why you typically buy ground beef instead of steak. Teach them the basic daily skills they will need to survive adulthood.

Pay Yourself First – Talk to them about saving money and why it’s important. Teach them to make it a priority to save a little bit from their allowance or their paycheck every single week. “Pay yourself first” is a powerful mantra that will make saving automatic. Just ten percent can add up quickly and can build a nice nest egg for emergencies, a down payment for a car or living expenses for their college years.

Credit Scores – Talk to your teens about the correlation between a credit score and spending habits. Talk to them about how their credit score will impact their borrowing ability in the future. Carrying an excessive credit card balance and paying bills late now and then may not seem like a big deal to a teenager. But these behaviors will affect their borrowing ability, determine future loan rates, affect their ability to rent an apartment or insure a car and ultimately affect the affordability of these things they need and want as adults. Reinforce the idea that paying bills on time, paying off credit cards every month and making good financial decisions will increase their credit score.