can college students still apply for credit cards?
The credit card reform bill that President Obama signed back in May will make it more difficult for young adults to get a credit card. Beginning February 22, 2010, anyone under 21 years old who can’t demonstrate that they have an independent means of repaying debt will have to get a co-signer before they can get a credit card in their own name. On top of that, any attempt to contact people younger than 21 with unsolicited offers for credit cards will be banned.
But that’s not all! The bill also makes “gifts” that come along with a card illegal if it’s a signup on or near a college campus. That means no more free t-shirts or frisbees just for signing up for a credit card.
There are a few questions still to be asked: what will constitute the ability to repay? The Federal Reserve has to set those rules, and they could look at it several ways. If you’re 19 and a full-time student, for example, you may work part-time and look like you can’t repay a credit card. But you might also get income from parents or other sources on an irregular basis. Will it be enough to say that your parents would help you out if you couldn’t pay? Or will the government require credit card companies to collect W-2s and bank statement information?
Protecting young adults from too much credit card marketing is a good thing. But the earlier you establish a credit history the better; part of your FICO score is determined by how long you’ve been “in the system” with credit in your own name. If you are a parent of a young adult – or a young adult yourself – consider getting a credit card with a low limit now (maybe $500) and using it responsibly. Remember that you should never charge $20 if you only have $10 in the bank: spend less than you earn.
Test Your Credit IQ
A good credit score can save you thousands of dollars on a loan, but many consumers don’t know what makes up that three digit number or have any idea what’s in their credit report. Think you’re credit savvy, take this quiz to see just how smart you really are when it comes to this important aspect of your financial health.
Questions
1. What is the average credit card debt?
a. $5000
b. $7000
c. $8000
d. $10,000
2. Many consumers can save ________ in a lifetime through better credit management.
a. $100,000
b. $1 million
c. $500,000
d. $750,000
3. True or False. Debt to income ratio has no impact on a credit score.
4. What component weighs most on your credit score?
a. Length of credit history
b. Credit utilization
c. Total accounts
d. On-time payment History
5. Closing your oldest account may reduce your credit score because it effects:
a. Credit Utilization
b. Length of credit history
c. On-time payment history
d. All the above
6. True or False: Using your credit cards regularly is better than not using them at all.
7. You can improve your credit score by
a. Closing credit cards you don’t use
b. Not using your credit cards
c. Reviewing your credit report regularly and correcting any errors
d. Not paying your bills on time
8. Do credit inquiries impact your credit score?
a. Yes
b. No
c. It depends
9. In today’s economy, good credit is essential when:
a. Trying to secure a home loan
b. Applying for a job
c. Applying to rent an apartment
d. All of the above
10. True or False. A great credit score is considered anything above 690.
Answers
1. C. $8000. The average consumer has $8,000 in credit card debt. Credit cards can be a slippery slope of spending beyond your means if you aren’t careful. Most consumers don’t realize paying the monthly minimum will keep us in debt for dozens of years.
2. B. $1 million – A good credit score qualifies you for better interest rates on home loans, car loans and student loans. Over the course of a lifetime, these interest fees can really add up.
3. True. Length of credit history, credit utilization, total accounts, on-time payment history and credit inquiries are the only components of a credit score. You can learn more about the impact each of these has at www.creditkarma.com/report.
4. D. On-Time payment history. On average, a person with perfect on-time payment history has a credit score over 700. However, make just one late payment and your credit score can drop 50 points.
5. D. All of the above – Credit utilization, length of credit history and on-time payment history are all important components of a credit score. Having a bad grade in one area can have a huge impact on your credit score.
6. True – Credit card utilization is defined as the total credit card debt you have divided by the total available credit on your credit cards. High credit card utilization can be a warning sign of credit risk. According to Credit Karma consumers with a 0% credit card utilization had a credit score 73 points lower than consumer who had a credit card utilization of 1-20%.
7. C. Credit reports are rich with data and often have a error or two. If you contact credit reporting agencies and have incorrect information removed, you may improve your score. Avoiding credit entirely means you’ll have no credit history, which will may it harder to get a loan.
8. C. It depends. Hard inquiries pulled by lenders do have an impact on your credit score, but soft inquiries don’t. When you pull your credit score simply for information purposes through your written authorization, it is considered a soft inquiry and has no impact on your actual credit score.
9. D. All of the above. Employers and renters are more apt to check your credit file before offering you a job or a place to live. To get your credit in top shape, it’s essential to maintain a low debt to credit ratio.
10. False. That used to be true prior to the recession. Currently, the average American has a credit score that comes in right around 690, but, even a 690 credit score provides no guarantees when it comes to getting a loan. With the current state of the economic climate, banks are much less likely to even lend to good credit consumers and when they do it’s often at a higher price.
Analysis
If you missed 0-2 questions, you know credit. You understand the important of being a smart credit use and likely have a high credit score.
If you missed 3-4 questions, you’re doing ok. You likely have an average credit score and understand the importance of paying bills on time.
If you missed more than 5 questions, chances are your credit is in need of improvement and you should start taking steps towards responsible credit use.
Steps to Keeping Your Home and Avoid Foreclosure
A report from the fourth quarter of 2008 shows that a growing number of homeowners are seeking lower mortgage payments through loan modification programs and mortgage refinancing.
In an effort to stabilize the housing market and help millions of American homeowners reduce their monthly mortgage payments, the federal government has launched “Making Home Affordable.” A new effort with Freddie Mac, this program offers some of the most aggressive refinancing and loan workout opportunities for financially strapped borrowers to date.
The program also warns those looking to cut their mortgage payments to beware of foreclosure “rescue” firms. These firms charge fees, but fail to provide solutions. To avoid scams, experts advise troubled borrowers to make sure they are dealing with a reputable organization by calling your loan servicer and HUD-certified housing counselor.
For more information on this new initiative, please visit http://inr.mediaseed.tv/FreddieMac_36557/. You may also find additional media assets at http://mediaseed.tv/Story.aspx?story=36557.
a portfolio for managing your financial life online
Today’s post is from financial expert and Credit Karma CEO Ken Lin. Prior to Credit Karma, Ken built predictive targeting models based on credit data and profitability metrics for Partners First. At the time, Partners First was a top 25 Credit Issuer.
5 favorites – A Web portfolio for managing your financial life online
There are 5 financial pillars that consumers should manage – here’s a quick look at a portfolio of 5 Websites that are up to the task and should be bookmarked as Favorites now. In general, these sites are focused on free tools that allow for anyone to actively manage their financial lives online.
1- Manage your money at www.mint.com – After just a few minutes of set-up, you can access all of your accounts in one place through a single sign-on, track expenses and project your budgeting needs out into the future. Another good option is www.wasabi.com.
2- Manage your credit score at www.creditkarma.com – Credit Karma offers free, unlimited access to your credit score, and useful tools to manage it. Credit is a hugely important component in our lives, whether you’re a student or a homebuyer, your current credit can have effects for 2-7 years into the future. For a full, free credit report, visit annualcreditreport.com.
3- Manage your investments at www.finance.yahoo.com – Yahoo! Finance offers a free resource for managing all of your investments in a single place online. There are other brokerage-specific Websites where you can manage a portfolio of investments, such as www.fidelity.com.
4- Manage your taxes at www.turbotax.com – TurboTax allows users to manage their taxes year-round. It’s amazing what a benefit it can be to have a single place to capture and manage tax information, such as business expenses, IRA contributions and charitable donations, among many other events. Another good option is www.hrblock.com.
5- Manage your insurance at www.insurance.com – Car, health, home, and life insurance options can be vast and complex, so it’s one of the things that many of us put on the backburner. But we shouldn’t, as it’s one of the simplest things we as consumers can do to ensure our financial futures. An insurance company that will actually offer better quotes from its competitors: www.progressive.com.
If you treat each of these 5 pillars of your financial life as equally important, and find sites like those recommended above that allow you to actively manage them, you’ll begin to see improvements that are only achievable with a well-balanced approach. And your financial well-being will become more than just a sum of its 5 parts.
are ‘high yield’ savings accounts worth it?
Jim at Bargaineering had an insightful piece a few days ago: Your Best High Yield Savings Account? in which he pointed out that there’s not much difference between 1.5% and 2.05% when you think about it. We’ve had an account with HSBC for years (three, actually) and now that it’s fallen to a rate of 1.65% the incentive to invest more money in it has become much less. You could also argue – and I would – that 1.65% far exceeds the rate of return on our 0.00% checking account, so there’s no need to sneer at the rate of return, which is very competitive with the market.
It is ironic that at this moment, when all news stories seem to be indicating that Americans are returning to a culture of frugality and saving, that we have so few options for safe, healthy returns on our investments. I am sure if HSBC offered 7% returns many people – like me – would be pulling all of our money out of our brokerage accounts and stashing them there. They can’t offer rates like that, of course, but the truth is that people are anxious to save and someone will make the case to be safe enough and offer high enough returns to pull in those savers eventually.
Earn 1.65% APY* at www.hsbcdirect.com
photo credit: Unhindered by Talent
Site Sponsors
|
 |