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ELFI Credit Series: Don’t Just Build Good Credit — Maintain It

December 17, 2019

If you’re a health nut, you know the importance of clean eating, regular exercise and routine check-ups. You don’t just “get healthy” once and move on — health is a lifestyle that requires constant maintenance.

 

Your finances are no different.

 

“Just like you go for your annual physicals for your health, you should be doing the same thing with respect to your financial health,” says Barbara Thomas, executive vice president of Education Loan Finance (ELFI).

 

Whether you’re gearing up for the new year by setting financial (and maybe health-related) resolutions or working toward a specific life goal (buying a house, paying off student debt, etc.), you need to maintain good credit. Here’s why and how to do it.

 

Why maintenance matters

Your credit score is like your weight (except with credit, higher numbers are better). Both are snapshots of your financial or physical health at a single point in time, and they can fluctuate up or down depending on your behavior.

In other words, just because you have good credit now doesn’t mean you’ll have it forever. It takes effort to maintain good credit, but the work is worth it. You need good credit throughout your life in order to:

 

  • Get a mortgage.
  • Refinance student loans (to potentially save thousands of dollars).
  • Get auto and personal loans at low rates.
  • Get credit cards with rewards and perks.
  • Get favorable insurance prices.
  • Co-sign student loans for your kids, if necessary.

 

But just like weight isn’t the only factor that contributes to physical health, your credit score is only part of the equation when you’re applying for loans. Lenders also review your credit report, which details the credit lines you’ve opened and closed, the amount you owe each creditor, and your payment track record. Finally, they often calculate your debt-to-income ratio to see if you have enough extra cash on hand to make another monthly payment.

 

» MORE: Why Maintaining Good Credit Matters

 

How to maintain good credit 

Whereas diet, exercise and sleep is the trifecta when it comes to staying physically healthy, there are five factors that go into maintaining good credit health: Payment habits, credit utilization, credit age, credit mix and new credit inquiries.

Mastering each category is key to maintaining good credit, although some factors matter more than others.

 

  • Pay your bills on time — always: Payment history accounts for the largest portion (35%) of your FICO score, which is the most popular credit scoring model. To succeed in this category, don’t miss payments or pay late.
  • Don’t max out your credit limit (or even come close):Credit utilization, or the percentage of total available credit you use, makes up 30% of your FICO score. Lenders want to see that you’re not overextended, so keep your total charges to less than 30% of your limit on each credit card. If a card’s credit limit is $10,000, for example, don’t spend more than $3,000 before paying it down first.
  • Think twice before closing credit cards. The age of your credit history accounts for 15% of your FICO score, and older is better. Closing credit cards — especially old ones — lowers your average account age. If a card doesn’t have an annual fee, consider keeping it open and putting one small, recurring purchase on it, like Netflix.
  • Use both credit cards and loans: Credit mix accounts for 10% of your score. It’s not necessary (or smart) to open accounts just to satisfy this aspect of your score. But having both credit cards and installment loans (like a student loan or car loan) proves that you can manage different types of debt responsibility — assuming you consistently make payments on time.
  • Limit hard inquiries: New credit counts for 10% of your score. When you apply for new credit (either a loan or credit card), lenders have to do a hard inquiry on your credit to see if you qualify. Multiple hard inquiries are a bad look for your credit, so avoid applying for multiple cards or loans in a short timeframe. Some lenders, like Education Loan Finance, let you prequalify for products like student loan refinancing with no hard inquiry, which means no ding to your credit.

 

Habits for good credit hygiene

Just as disease and injury pose unexpected threats to your physical health, errors and fraud can endanger your credit. To protect yourself, adopt these habits:

 

  • Check your credit reports annually:You can pull three credit reports for free each year — one from each of the three major credit bureaus (Transunion, Experian and Equifax). Read them thoroughly for mistakes. If you spot one, dispute it with the credit bureau. Also, notice how the same information may be characterized differently by different bureaus. Read the comments below each account listed on your reports, and dispute the information if it’s inaccurate.
  • Keep your credit frozen: You can freeze your credit for free through each of the credit bureaus. A freeze means no one can pull your credit, which helps prevent scammers from opening accounts in your name. When you wanta lender to pull your credit because you’re applying for a loan or credit card, you can temporarily unfreeze it.
  • Consider a credit monitoring service: You can check your own credit reports annually for free. But to keep extra eyes on your credit, consider a credit monitoring service. You’ll be offered free credit monitoring if you’ve been a victim of a data breach. Otherwise, you can purchase it from one of the credit bureaus for a monthly fee, or sign up for a free credit monitoring services from sites like Credit Karma and Credit Sesame.

 

» MORE: 5 Habits for Good Credit Hygiene

 

Once you’ve followed these tips, rinse and repeat. It can take as little as several months to establish credit in early adulthood, but maintaining credit is a lifelong endeavor.

 

Credit-worthiness is an important factor in maintaining good financial health. And if you’re considering student loan refinancing, your credit score plays an important role in securing great rates. ELFI’s prequalification process is quick, 100% online and won’t affect your credit*. Speak with one of our Personal Loan Advisors today, or see how much you could save today.*

 


 

*Subject to credit approval. Terms and conditions apply.

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Group of friends taking photos of food for social media
2020-05-12
Is Social Media Ruining Your Finances?

Due to the coronavirus pandemic and shelter-in-place restrictions, people are spending more time on social media than ever.    By Kat Tretina Kat Tretina is a writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.   While social media can be a fun way to pass the time, it can have a negative impact on your finances. According to Schwab’s 2019 Modern Wealth Index Survey, more than a third of Americans said their spending habits were influenced by images and experiences shared on social media. Regularly using social media could cause you to overspend and put your financial goals at risk.    If your social media use is damaging your finances, here’s how to take back control.   

Signs your finances are getting derailed by social media 

Using Snapchat, Instagram, or TikTok isn’t necessarily a bad thing. It’s all about moderation. But there are some tell-tale signs that your social media use is hurting your bank account:   

1. Falling for FOMO

Seeing friends and old classmates’ vacation photos can give you a severe case of FOMO— fear of missing out. Those glamorous photos can cause you to want to book your own expensive trip.    However, you should know that few people can really afford those exotic vacations. According to BankRate, the average person spends less than $2,000 per year on vacations. The Federal Reserve reported that 40% of Americans can’t cover a $400 emergency expense, so a pricey vacation — or even a weekend trip to the beach — is out of reach for many.    While some people may save for months or years to pay for their vacations, many more turn to credit cards to finance their trips. Chasing their lifestyles could damage your bank account.   

2. Believing in the fantasy

With so many people posting beautiful photos of lavish purchases, it’s easy to believe that everyone is living a more luxurious life than you. But what you see on social media isn’t always real life.    You have no idea how people are paying for those luxuries. They could be well off, or they could be in extraordinary debt.    One well-known influencer racked up $10,000 in credit card debt to keep up her Instagram persona, filling her feed with pictures of dinners out, new outfits, and online purchases. And companies exist that allow users to hold fake private jet photo shoots   Take the photos you see with a grain of salt and don’t compare yourself to others.  

3. Purchasing on impulse

Social media ads are incredibly targeted; they’re based on your search history and likes, so you’ll likely see ads for products that will appeal to you. In fact, a 2019 survey from VidMob found that one-third of Instagram bought an item directly from an Instagram ad.     With one-click purchases and saved credit card information, it’s easy to make a purchase in an instant before you can really think it through.    If you find yourself making purchases while scrolling through your social media feeds, you may be wasting money.   

How to stay on track

If your social media use is compromising your finances, use these five tips to get back on track:   

1. Limit your screen time

While it may seem difficult during shelter-in-place orders, set limits on how much time you spend on social media. You can use your phone’s screen time settings to see how much time you currently spend on your phone. Use apps like Moment, Freedom, and SelfControl to limit your social media access.   

2. Keep visual representations of your goals in front of you

To combat visuals of vacations and other purchases, keep visuals of your goals handy. For example, if you’re paying down student loan debt, keep a visual graph of your progress on your phone or saved to your computer desktop.    (Hint: Need help paying down your debt? Consider student loan refinancing. Our customers have reported that they are saving an average of $272 every month and should see an average of $13,940 in total savings after refinancing their student loans with Education Loan Finance. You can get a rate quote without affecting your credit score.*)   If you plan on buying a home or a car, keep a picture of your dream purchase saved. You can also create a Pinterest vision board of what your goals are to help keep you focused.    After all, taking control of your finances can help you live lavishly once your debt is repaid.   

3. Set a waiting period before making any purchases

Institute a waiting period before making any purchases to curb impulse buys. Make yourself wait 72 hours before making a purchase.    If you see an item you want, save it. If you still want the product three days later, you can give yourself permission to buy it.    You may find that you completely forget about it, or that it’s less appealing after a few days. By making yourself wait, you can ensure that your purchases are things you really want and need.   

4. Curate your feeds

Social media can be fun, but it can also make you feel bad about yourself and your life. To combat those problems, spend some time eliminating feeds and unfollowing accounts that make you feel inadequate, and only follow accounts that make you happy.    Feeds that feature cute dogs? Follow! Home decor feeds with throw blankets and lamps that cost more than your rent? Unfollow.   

5. Practice gratitude

Researchers have found that focusing on things that you are thankful for is proven to make you happier. Every day or at least once a week, set aside some time to jot down things you are grateful for that happened during the week.    They don’t have to be big things. Cooking an especially tasty dinner, being able to spend time binging Netflix with a friend or partner, walking your dog, or still having a paycheck during a difficult economic period are all things to be thankful for right now.    By focusing on the good things that are already in your life, you’re less likely to be affected by FOMO and social media’s influence.   

Managing your money

Using social media can be a great way to connect with friends and family and pass the time, but it can negatively impact your finances. But by using these tips, you can combat its effects and manage your money.   
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Millennial reading in living room
2020-05-11
Forget the Joneses: Why a Modified HENRY Lifestyle May Be Better

If you have ever been tempted to get the latest phone or newest trendy clothing, you may be familiar with the feeling of needing to keep up with the Joneses. Now, some millennials are feeling the pressure to live up to a new standard. As opposed to the proverbial Joneses, it’s the HENRYs. Although HENRYs have their downfalls, just like the Joneses, with some financial tweaks you can set yourself up for a bright financial future and avoid the pitfalls of being a HENRY.     By Caroline Farhat  

What Is a HENRY?   

HENRY is an acronym that stands for “High Earner, Not Rich Yet.” First used in a
Fortune magazine article in 2003, it’s a term that describes millennials who typically earn over $100,000 but feel broke. According to financial experts that help HENRYs with their financial goals, the typical HENRY is: 
  • Earning more than $100,000 a year as an individual or $150,000 as a couple
  • A millennial, with the average age being 32 years old 
  • Working in any industry, including software engineering, digital marketing, journalism, law, medicine and finance 
  • Usually living in high cost of living areas with the higher-paying jobs, like California, New York and Washington D.C., but can live anywhere 
  • Saving money, but not enough. The typical HENRY may have between $15,000 and $20,000 saved. Although this may seem like a lot compared to the 58% of millennials that have a savings account balance under $5,000, based on the percentage of income earned, the savings are minimal.  
 

Problems HENRYs Face

Many millennials who are considered a HENRY feel like they are living paycheck to paycheck, however, they make it a priority to pay for expensive gym memberships and dream trips. Here are some problems HENRYs face and how to fix them:   

Lifestyle Creep

Lifestyle creep refers to the phenomenon in which spending on discretionary items increases when income increases. It can be dangerous to increase spending each time your income increases because it can derail future financial plans. HENRYs often give into lifestyle creep because they have the mentality that they deserve the luxuries they have become accustomed to.   The Fix: To fight lifestyle creep, prepare a budget with the goal of trying to save at least 10% of your income a month or 20% or more if you do not have any debt. Keep your budget the same even if your income increases and be sure to save the difference in income. If you are able to lower your expenses, save that difference too. It’s recommended that the savings go to a retirement account and building an emergency fund.      

Student Loan Debt

  Student loan debt is a major strain for many HENRYs. According to one financial expert, 40% of her clients who are considered HENRYs have student loan debt. HENRYs owe an average of $80,000 in student loans, much higher than the average $33,000 for millennials in 2019. However, for many HENRYs, student loans helped them achieve the education they needed to obtain the high wages. The best way to deal with the student loan debt is to see if you’re missing out on ways you could be saving money on your loans and create a plan to pay them off quickly.   The Fix: Student loan refinancing can be extremely beneficial for many student loan borrowers.* Refinancing student loans can save you money on your monthly payment and in interest costs over the life of the loan. This will allow you to build more wealth faster and feel less strapped for cash. So how much can you save?    Let’s say you had $35,000 in student loan debt at 7% interest with a 10-year repayment term. By the end of your repayment term, you’d pay a total of $48,766. Interest charges would cause you to pay back $13,766 more than you originally borrowed.     If you refinanced your student loans and qualified for a 10-year loan at just 5% interest, you’d repay $44,548. Refinancing your debt would help you save $4,218.     Use our student loan refinancing calculator to find out what your potential savings could look like.*    

Living for the Now

  HENRYs like to focus on the now, and although it is good to live in the present and appreciate what you have, that may not be the best mindset for your finances. HENRYs have to accept that the future will come and they have to prepare for it. But preparing for the future doesn’t mean you have to make a ton of sacrifices! It’s completely possible to enjoy worldly adventures and designer brands now and still save for the future.    The Fix: Decide 2-3 future goals you’d like to achieve and examine the type of financial situation you’ll need to make them happen. Do you want to save for a down payment on a house? Plan to start a family soon? Or are you looking to retire early? Once you have your goals, set up automatic transfers to a special savings account so that you’re not tempted to touch the money.  

Cost of Living 

HENRYs face a higher cost of living because income increases have not kept up with the rising cost of housing and medical expenses. Many also face the added stress of living in high-cost metropolitan areas.   The Fix: Try to cut your living expenses by choosing to live in the suburbs where housing costs may be lower. If cutting your living expenses is not an option, decide what discretionary expenses you can lower. For example, if you are used to getting takeout multiple times a week, try swapping easy home-cooked meals for at least half of the time.  

Conclusion

If you realize you are a HENRY, this doesn’t mean financial doom for you. Making these small tweaks can help you continue to live the lifestyle you enjoy while working towards a richer future.  
  *Subject to credit approval. Terms and conditions apply.    Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Chart showing a good credit score
2020-05-06
Are Student Loans Impacting Your Credit Score?

Even if you only have a basic knowledge of how credit scores are calculated, you may be aware of the fact that taking on debt and then paying it off in a timely and consistent manner is generally considered one of the best ways to build good credit, while late and missed payments can show up as black marks on your credit history.  What you might not know is that different types of debt can have different ramifications where your credit is concerned.   For example, the balances carried on credit cards are considered to be a form of revolving credit, according to Investopedia.  Lines of credit also fall into this category.  This type of debt includes a maximum limit and accounts are considered “open-ended”, which is to say, you still have access to agreed-upon funds even after you’ve borrowed and paid back up to the maximum.   Then there are installment credit accounts, including loans for houses, cars, and college tuition, just for example, which Investopedia characterizes as separate from revolving credit in that there are terms attached which specify the duration for payments, the number and amount of payments, and an end date for the loan.  Further, once payments are made, the money cannot be borrowed again.   These types of debt affect your credit score in different ways.  Revolving debt is potentially more damaging, as carrying high balances on credit cards could have an enormous impact on your credit score.  Revolving credit determines 30% of your score, according to MyFICO, although there are certainly other factors involved, including:
  • What is owed on all accounts
  • What is owed on different types of accounts
  • The number of accounts with balances
  • The percentage of revolving credit in use (credit utilization ratio)
  • The amount still owed on installment loans
  Of course, if you find that revolving credit is severely impacting your credit score, Investopedia suggests that paying it down also has the potential to deliver significant improvements, and some people even utilize installment credit (personal loans) to pay off revolving credit as a means of lowering interest rates and shifting to a less impactful form of debt. Although revolving credit accounts for a major portion of your credit score, installment loans can also have an impact in both positive and negative ways, according to an article from Student Loan Hero.  Here’s what you need to know about how student loans can impact your credit score.  

How Can Student Loans Help Credit?

Because installment loans aren’t weighted as heavily as revolving credit when determining credit score, they may have less potential to damage your rating.  In fact, FICO statistics show that approximately 38% of consumers with student loan debt totaling over $50,000 fall enjoy a FICO score of over 700, which is considered the average score for American consumers, according to a recent article by Fox Business.  Those in the 740-799 range are considered to have very good credit, while a score of 800 or higher is considered exceptional.  By comparison, about 28% of consumers with student loan debt over $50,000 have scores under 599, which is considered a poor credit rating.   What does this mean?  It’s difficult to say, because credit ratings are based on so many different factors aside from student loan debt.  However, when managed appropriately, student loans, like any type of installment loans, could certainly improve a credit rating.   While revolving credit accounts for 30% of a credit rating, payment history is actually more important, delivering a whopping 35% of your credit score.  If you pay your monthly student loan bills on time and in full, you should be able to steadily build good credit over time, especially when you take the same care with all your other financial obligations.  Of course, this can be a double-edged sword, as well.  

How Can Student Loans Hurt Credit?

While student loans don’t necessarily have the same major detractors as revolving credit, they still have the potential to harm your score if you don’t manage them appropriately, and even a single slip could cost you.   Even if you’re a responsible adult and you’re diligently paying down debt, it can be hard to juggle the many student loan payments associated with years of schooling (and taking out new federal student loans each year).  Something could slip through the cracks.  When this happens, it could have a negative impact on your credit score.   Even worse, the better your credit score, the more a late or missed payment could impact you, according to MyFICO.  This is because a higher score reflects less risk.  While a consumer with a lower FICO score is known to have some credit issues and is therefore somewhat less impacted by future problems like late or missed payments, someone with a stellar credit rating may fall further for similar infractions because the risk was not anticipated.  It doesn’t seem fair, but when paying down student loan debt, it’s important to understand the potential impact.  

Why Does the Impact of Student Loans Matter?

Your credit score is used to determine whether you are approved for future loans and to calculate the interest rate and terms you are eligible for, according to Student Loan Hero.  While a single late or missed payment isn’t going to tank your score, and you can always speak with lenders about removing black marks on your credit report once you’ve rectified a mistake, you naturally want to maintain a high score if at all possible so as to improve your odds for loan approval and the best terms down the road.  

How Can I Improve My Credit Score While Paying Off Student Loans?

Even if you’ve had smooth sailing so far, you may be interested in the benefits to be gained when you refinance student loans.*  If you currently juggle several student loans and you’re worried about the possibility of missing a payment somewhere along the line, you could refinance and consolidate student loans into one convenient payment.   In some cases, you might even save money when you refinance student loans by lowering interest rates or transferring variable interest loans to fixed interest options.  It depends on your situation, but it’s something to consider when it comes to controlling how student loans impact your credit score.  

ELFI Credit Series: 5 Habits for Good Credit Hygiene

 
    *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.