I've been out of college for about two years now. And of course, that's the glorious time in your life full of revelations, and most of them aren't well.. great.
You always hear about them, but always discount them or figure it won't be you, or maybe just you really didn't hear about them. And of course, being a "part" of "That Occupy Generation" the news loves to talk about so much, it means we have a few more things to be bitter about when life/reality smacks us 20-somethings in the face.
It's the realizations that get you...
...realizing you're burnt out after you studied something for 2-6 years, and don't want to touch it anymore no matter how much you loved it. And of course, that makes you feel guilty (because you loved it so much!), it makes you feel lost, and can lead to an all out "oh-shit-what-the-hell-do-i-do-now!?"
...realizing you've got a shit ton of school loans to pay back, and have no idea how to go about paying them back. And the pressure of suddenly living with something so big that, while older adults are used to living with by now, is a totally
new daily burden for us.
...realizing that you're making maybe $1-$3 more dollars an hour than when you were in your high school summer jobs. Man... that's a damn hard pill to swallow after $40,000-$150,000 + in school loan debt.
...realizing that you have no clue how to get your foot in the door career wise, let alone, how to approach half of the other shit that people "always warned you about", like paying all your bills on time and with the little money you're making, or like how "being responsible means not messing up your credit", or like "ah, you'll just take the first job, it doesn't matter what you study, you need to pay your bills somehow."
...realizing that your parents and teachers didn't necessarily know not only everything, but maybe absolutely little about specific subjects. Like how to deal with the first signs of getting older, or how to eat healthily, or how credit really affects you or even what it is exactly.
In my house, credit was this big huge boogie-monster my mum used to scare us kids into "being responsible".
And you know, in college? It was pretty much the same thing.
I only had one professor ever who even mentioned it. That person? My math teacher. He actually gave us a lot of useful and life relevant assignments - surprising for a college environment. (Note: I did not attend a great university. So, perhaps other people had different experiences, where your university actually prepared you for "real life".) He gave us a lot to think about in regards to credit, and things like depreciation on brand new vehicles and the overall amount you'd end up paying via installment loans, ect, ect. However, since I had never heard a single tidbit of this information before, it was hard to grasp in a real-life-scenario way.
So, like my Dad always said "you gotta learn your own lessons, kid."
So, this is what I've learned personally about credit, building your credit, and watching your credit. It's gonna be long winded, and I apologize, but I think it's really important to get out there. It is so easy to get screwed over, and I'm pretty sure our generation is clueless because nobody ever taught us properly because no one ever taught them. Please don't hesitate to ask any further questions via comments or email at WalkerAndWhite // gmail.
First of all. Go check your damn report. This is how a lot of us, an alarmingly high number, get totally screwed right off the bat - by not checking. I know personally I didn't even think about it. Also, when I finally got around to thinking about it I was daunted by the numbers, depressed that I "didn't have a great credit score" which in my mind translated as worth, and didn't understand the damn thing anyway so I just ignored it for a few months even after checking.
Maybe our parents didn't teach us, maybe our friends didn't know either, and maybe college ignored the subject completely, but you know? WE HAVE GOOGLE! Man up, read up, and just do it.
It is the biggest step that you can do in securing your financial future. And if you screwed up in some way (a lot of us did, honestly.) you can see it, and start fixing it ASAP so you can get that car loan when you finally get that new job. Or something bigger, like the mortgage on your first house. I know it may seem unimportant right now... I didn't check mine for a long time because I didn't foresee my financial circumstances changing any time in the future, but I ended up paying that price later - and it sucked!
I know "financial future" is a term that seems to stab our inner child, but really, if you take care of it, you'll free up so much effort, time, and money so you can actually enjoy that inner childishness when it wants out.
You can read my personal choice for checking your credit, which includes step by step information useful to people checking their credit anywhere in my post about using Free Credit Report.com as a method to learn more about your credit and credit in general.
http://walkerandwhite.blogspot.com/2012/09/diy-credit-free-credit-report-dot-com.html
I honestly believe this is a fantastic way to learn. So could start there if you want. Some of that is repeated here, but that update is more in depth about the actual credit report and what those different things mean - even if you don't choose to use the site I do. So please read.
This is an overview, important things to know about Credit as a whole.
This isn't a very scientific break down or explanation, but that's why I'm writing this. You can google "credit for beginners" and learn a lot from banker and government websites. But this is the simple, my-experiences version.
Okay, What is Credit? And why should I give a shit when I'm young and don't plan on buying anything big aaaaany time soon?
Credit isn't just credit cards.
Credit isn't just the number/score.
It isn't a lot of things.
It IS, however, one of the gateways to your own personal future.
You cannot get a mortgage, a car loan, a school loan, or even a new cell phone company without credit.
It is a detailed history of your financial decisions that comes with a judge-able number. It includes all kinds of information; from your current address, to the total of your school loan/mortgage/car loan/credit card debts, to how much you pay monthly in bills of that type, to whether you've had any late payments, non payments, bankruptcy or financial effecting court decisions.
Your
Credit Score is the big number everybody is always talking about. The one that banks/ect look at to see if your number is "high enough" for them to loan to you. It's effected by a lot of different things and mostly on your own financial decisions. It is
not just some arbitrary made up number. Each of the three big credit bureaus (Experian, TransUnion, Equifax) have their own number scale, but they are all very similar. For the most part the range is 300 to 850. 300 would be the worst case end of things, where you will find it extremely difficult to get even a Sears store credit card. 850 would be the opposite end, the almost absolutely perfect end where you could go get a loan for your own private jet if you wanted. 700 is considered ideal/decent, while 500 or less is considered "bad". The lower your score is the less likely you are to get approved for loans/credit cards/ect, and if you do get approved it means that your interest rate on that loan will be higher. You can read a lot more in depth information on what makes a credit score
here at the credit score wiki page..
Your
Credit Report is where the details behind that number (score) are. This will tell you everything financially related that is currently effecting you and your credit. All of your school loans, credit cards, store cards, car loans, mortgages, current and past. It's all there, and each thing has details listed. It says exactly how much you owe, how long you've owed it for, and if you have or have not been sent to collections, been significantly late on a payment, or owe anybody anything, ect.
Banks/ect look at your credit score, they can also look at the entire report.
No bank or business can look at your credit report at any time they want to, they need your permission.
Applying for any loan, credit card, store card, or for a new cell phone carrier IS approving them/giving permission to them to run a hard inquiry on your credit. Anyone, other than yourself, looking at your report is called a
Hard Inquiry. (See a detailed description of this further below.)
Each Hard Inquiry makes an impact on you and your score and your risk. If you have too many hard inquiries this will cause your score to go down and your risk to go up. (See a detailed description of Risk below.)
Apply for credit cards and loans carefully. This is very important. Do not apply for "as many credit cards as you can get", because you will get that same number of inquiries which will cause your score to go down. If you're looking for your first credit card and don't have a lot of credit history, apply to ones that have reputations for that situation.
For example, the Amazon.com Chase Credit/"store" Card is a Visa and is fairly easy to get for people with little credit history. It comes with a small limit of $400, it also doesn't have a yearly fee. You also get an amazon gift card for signing up. (However, watch your amazon checkout carefully when you make purchases after getting their card. It will automatically choose their card for payment when you go to check out, you'll have to change this in your settings to have it set back to your regular card.)
You do not, for example, want to apply for an American Express card of any type. They have a reputation for being the hardest card out there to get approved for. I know people with great credit that have been denied. Discover isn't terribly "easy" either. When you apply for cards that are difficult to get there is a higher chance you will be denied - which means you took the damage from having an additional hard inquiry, but did not get the extra good points from being approved for that item.
When you get approved for a credit card it will improve your credit score by making that number go up. However, if you then spend all the money available on that credit card it will make your score go down, so be careful.
Store cards, like that Victoria's Secret Store Card, are also easier to get if you have very little credit history. However, store cards carry the least amount of weight on your credit report. They will only help your score go up a few points, where as your school loans (paid regularly on time, of course) will cause your score to go up significantly.
On the note of applying for credit cards - yes, they're important. But! They're absolutely important to NOT USE. Having money available on your credit card (especially
all of the money on it available) shows companies that you are responsible with money, it makes them want to loan you more.
You do need to make one or two purchases per year or every 6 months to keep it open or they will "turn your card off". A closed account is not good for your credit - banks want to know that you can handle money available over years of time. When you make a purchase on your card, pay it that night when you get home. Seriously. And don't even think about using your credit cards for tough times. Chances are if you're in the middle of tough times, you're not going to be any better off next month when it's time to pay that bill, so why shoot yourself in the foot? Keep em in a drawer or a safe place where they won't be found and you won't have to see them in your wallet every day. (This is also a great way to have back up cards to use if your wallet gets lost or stolen, until you can replace the debit cards, ect that were in your wallet. And then, pay that stuff off as soon as you use it.)
Side note/life hack: I recently tried to pay my card twice in one day (This was because one of the payments came out automatically, but I wanted to pay off the remaining balance.) and they refused to accept the second payment. I called in, and found out that you
can do this, but it has to come from a separate bank account than what the first payment came from. When you go to apply for a loan or credit card, it is good to have 0 balances on all of your credit cards. This gives you "more available credit" and this will help you get that loan, ect. Credit cards only update the bureaus with the information, like how much you owe them, once a month on the statement date. That means it is probable that you will have to pay them off a month before you apply for a loan/ect.
With loans, the better your credit score & report is, the better the interest rate will be that they'll offer you when you apply and are approved for that loan. That can mean the difference of thousands of dollars over a year in or out of your pocket. And whether or not you eat ramen or steak for dinner.
What effects your credit score? Lots of things & anything mentioned above. Any loan, credit card, or mortgage that you take out. Also, if you fail to pay any credit card, cell phone, or medical bill, that will be reported to the credit bureaus.
The biggest one, and the one your mum always told you ----
pay your bills, and pay them on time.
Even if it's a day or two late, pay them. Chances are most companies will not send you to collections over a few days late, or even a month. But after that? All bets are off. If you get sent to collections over anything - even that Verizon Wireless cancellation fee, or a medical bill - it will go on your credit for 7 years, and will bring your score down significantly. It's one of the worst things you can do to your credit.
Basically, if you're applying to someone to give you money (in the form of credit card or loans, ect) why would they trust you to pay it back if you haven't paid somebody else back? It's just like trying to borrow $5 from your friend, when you still haven't paid him back the $5 you borrowed last time.
That said, what things affect your Score? What makes it go up and down?
Basically, anything and everything in your credit report.
The best way to figure those questions out is to subscribe to a site like Free Credit Report.com and watch your credit score and report at least once a month. You'll quickly figure out what things make it go up or down in a specific way to you. What better than to get the answer for your specific situation??
Basically, a short form list of what drives your score up or down are as follows.
However, I go into detail about each one of these in my other post, please read more there: http://walkerandwhite.blogspot.com/2012/09/diy-credit-free-credit-report-dot-com.html
Credit To Debt Ratio: How much money you have available to spend on your credit cards VS how much you owe those credit card companies. The less you owe them, and having funds on that card available to spend, the better your credit is. For example, if you are only spending 16% or less of your available spending on your credit cards, that's a good thing and your score will go up. If your credit cards are maxed out, or you carry even 40-50% balance it will drive your score down. Also, the less money you have available to spend on a credit card, the bigger an impact that $20 you throw on it will have. It's about percentages, not that specific amount. One personal example: I had two credit cards, an Amazon Visa and a Store Card. Both had a $400 spending limit. On one I spent $250, and on the other I only had charged $60 to it. Now if I just look at the numbers, it doesn't seem like a lot compared to how much I had available to spend. However, when I paid that $250 AND the $60 down to zero on both cards my credit score literally jumped up 20 points. 20 points is enough of a difference that it could mean the difference of getting approved for a loan or denied.
Hard Inquiries: This is anyone, other than yourself, looking at your credit report. You must authorize a bank, credit card company, cell phone company, ect to do this. Applying for a loan or a credit card (even if you're applying for a store card at the Sears check out counter) IS granting them permission to inquire about the status of your credit. Each Hard Inquiry makes an impact on you and your score and your risk. If you have too many hard inquiries this will cause your score to go down. They change your Risk. Risk is another thing banks pay attention to. They want to know that if they go out on a limb for you by loaning you all that money, you're a low risk to take. If your risk is high, it will drive your score up.
Risk is exactly what it sounds like. For example, if you only have 2 hard inquiries then you are considered low risk, because you have only applied for borrowed money twice recently. The bank will feel like they aren't taking a big risk by loaning to you, so you are more likely to get the loan.
Important to note: Just because you get a hard inquiry doesn't mean you'll get approved for the loan. The lender/company may not "like what they see".
Hard inquiries only stay active on your credit for two years. You should ideally attempt to only get 5 or less inquiries within two years, that will keep your risk at a medium or lower. Between 5 and 8 inquiries within a 2 year time raises your risk to "high" and it can drop your credit score by a number of points. Any higher than 8 and your score will definitely drop significantly and you may have a harder time getting approved for loans at good interest rates or at all.
You checking your own credit score via the bureaus or a site like free credit report.com is
not the same as a hard inquiry.
You do not effect your credit in any way by checking it. By law you are entitled to know what your credit report looks like, what specific information is listed, and what your score is.
Negatives: This is the bit that sucks. If you owe anybody anything, were sent to collections over anything, didn't pay a bill of any kind, it can show up here. And it'll stay here for 7 years. It is the biggest thing that makes your score drop. And you could have a good score, with a negative, and still get denied a loan - however, that's not always or even usually the case. The longer they are on there the less of an impact they have on you. For example, if a negative has been on there for 5 years, people might not care much, and your score might not even notice it. Never despair about this, there are things you can do right now to repair it.
Age/Length of Accounts: The longer you've had an account - like your school loans or a credit card - the better. It shows you can handle money over time, and pay monthly payments.
Account Types: Different types of accounts (Credit Cards, Installment Loans, Mortgages, Store Cards) have different weight on your credit score. Mortgages have the biggest weight, installment loans - like school loans - are second. So if you have a big school loan and you pay it every month, you're driving your score up quicker and higher than if you had only a store credit card. If you miss payments on any of these accounts, it will drive your score down significantly, and stay as a negative on your account for 7 years.
Basically the scale is as follows:
Real Estate Loans: These carry the most weight, because they carry the highest numbers and the most responsibility on your part to pay them on time religiously.
Installment Loans: Like your student loans, car loans, personal loans, ect. By having these it will drive your credit score up higher than the two listed below.
Credit Cards: These help you get a start and are somewhat of a "necessary evil". A lot of people cannot handle the responsibility of having available money to spend on a credit card. They will spend all of it, and then that will cause their score to drop farther than where it was before they got the improvement in the score from getting the card in the first place. The way to get the best out of these, is to simply not use them more than once or twice a year/6 months, and to pay them off the literal day you put money on them when you do use them. As mentioned before, it also hurts your credit score if you cancel, close, or have the card shut off. Closed accounts do not help your score. Especially if you are still paying it off.
Retail Cards: They carry the least amount of weight. They will only improve your score by a few points. Sometimes you need a few points, like when you're first getting started, so they will have a bigger impact for you. BUT, if you fail to pay they will drop your score down significantly and damage your credit score, just like if you fail to pay any of the other account types.
Bankruptcy and Court Judgments If you've filed for bankruptcy, it's gonna show up, and it's going to drive your score down. It'll take time, but you can repair this damage. So don't loose hope. I do not have any personal experience with either of these, so I cannot give personal opinions or information about them.
Credit Cards, Loans, & Other Debts: This is the actual list of all of the different accounts that you have. Whether you pay each one regularly, how much you owe them, how much you've paid so far, how much you pay a month, and if you've ever missed a payment or got a negative on any of these accounts. All of these things effect your credit score.
This is all I've got for now, I know it's a lot to digest, but please read my other entry and also comment or email me if you have any questions. WalkerAndWhite // gmail.
http://walkerandwhite.blogspot.com/2012/09/diy-credit-free-credit-report-dot-com.html
I'll be posting an entry about how to dispute negative or false information on your credit report soon.
