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How to Build Credit: A Beginner’s Guide

September 12, 2016

Building credit is a topic that isn’t always in the forefront of young adults’ minds. Up until a certain point in life, it is just something that they have never really had to worry about (or knew that it actually existed). However, with the transition from student to full-fledged adult comes an abundance of new responsibilities, and one of the most important challenges recent graduates and young professionals will face is establishing good credit. Having a good credit score is crucial for many adult decisions, including purchasing a car, becoming a homeowner, and even getting hired for a job. However, a solid credit score does not just happen. It must be built and maintained over a period of time. That is right — you will have to start from the ground up. Fortunately, there are several tools you can take advantage of as a college student, recent graduate, or young adult to begin the process.

First, we will cover some basics about credit scores. There are different types of scores, but the FICO score is the one most widely used by lenders. These scores are calculated by the three credit bureaus — Experian, Equifax, and TransUnion — and scores range from 300 to 850. This score takes a variety of factors into account, including how quickly you pay your bills, how long you have maintained accounts over time, the percentage of your monthly credit limit that you spend, and more. The higher the score, the easier it could be to obtain a credit card, take out a loan, and get lower interest rates.

You now know how credit scores work, but how do you actually begin the process of building credit from scratch? There are three major tools you can use to do so: credit cards, loans, and rent payments.

  1. Credit Cards

One of the simplest ways to establish credit is through credit cards. Before taking out a credit card be sure to:

  • Before making large purchases, develop a plan for how you will repay what you owe in a timely manner.
  • Try to keep your balance below 35 percent of your monthly credit limit.
  • You do not have to charge every purchase on your credit card in order to build credit. Using your card sparingly and for smaller purchases, such as groceries, and paying off your balance each month will raise your credit score.
  • Never miss a payment. Failing to make a payment on time could negatively impact your credit score.

In addition to traditional credit cards, there are also a few alternatives you can use to boost your credit. For example, a retail or store card is a type of credit card that can only be used at a certain store. They typically are easier to obtain than a standard credit card, but they often come with higher interest rates. You can also get a gas card (credit card used specifically at certain gas stations), which is a great way to make sure you do not overspend while still boosting credit.

  1. Loans

A slower (but still solid) way to establish credit is by taking out a loan — whether it be an educational loan, a home loan, or some other type of financed purchase. Many young adults have to borrow money at some point to help finance their education or purchase a home, to name a few, and having a moderate amount of loans in good standing can be a great way to build credit. However, because payment history is the most influential factor in calculating a credit score, it is absolutely essential that you pay your loans on time each month. A good way to ensure punctuality is to set up automatic payments (whenever possible), set reminders, or make your monthly payments as affordable as possible. Figure out what amount is feasible for you to pay based on your income, and talk to your lender about the possibility of lowering your monthly rate.

  1. Rent

A third option for establishing credit, and one that is often overlooked, is making timely rent payments. Two of the three credit bureaus, Experian and TransUnion, now give the option to factor monthly rent payments into your credit score. If you are a renter, this is a solid way to build credit history in college, after college, and as a young professional (and without a credit card).

Establishing a good credit history can seem like a daunting process, and getting started can be challenging for young people who are just beginning to achieve financial independence. Just remember, everyone must start somewhere. If you can use one or more of the above tools responsibly, you will be well on your way to building credit and setting yourself up for financial success in the future.

 

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2019-11-01
4 Ways to Prep For Your Post-College Life – Right Now

College life can be a bubble. In many cases, you’re shielded from the real-world realities of full-time jobs, rent and student loan payments. But before you know it, graduation will pass and you’ll be thrown into the responsibilities of adulthood.

 

“You need to plan for the future and the future is here,” says Barbara Thomas, executive vice president of Education Loan Finance (ELFI). “It’s not just when you graduate.”

 

But you also don’t have to sacrifice a memorable college experience to set yourself up for future success. Here’s how to estimate — and plan for — the cost of your post-grad life.

 

1. Make a list of future monthly expenses

Having a sense of how much life costs is helpful for choosing a major, researching jobs and negotiating your first salary. It’s okay to estimate for now. For example:

 

2. Add it all up, then account for taxes and savings

In this example, your total monthly expenses come to $2,533. But you’re not done yet — there’s a lot this number doesn’t include. For one thing, the government takes money out of each paycheck for taxes, Social Security and Medicare. You also need health insurance, the cost of which may get taken directly from your paycheck if your job offers it.

 

Those costs vary based on factors including the amount you earn, where you live and your job’s benefit package (use a paycheck calculator to estimate yours), but they could easily run you $1,000/month. This puts you at $3,533/month in this example, or about $42,000/year.

 

You’re still not quite done. You need to be saving for the future and for inevitable emergencies like car trouble or accidentally smashing your phone on the sidewalk. Experts recommend saving 20% of your paycheck, which is about $600/month in our example. (That may not be realistic at first, but it’s an excellent goal.) So, you really need to earn $4,133/month, or about $50,000/year.

 

3. Make adjustments to save money

You might be panicking a little right now, but these numbers are attainable. The average annual starting salary for the class of 2018 was about $51,000, according to a survey by the National Association of Colleges and Employers.

 

Plus, there are ways to cut your monthly expenses to make some wiggle room in your budget. For instance, student loan refinancing* can potentially shave hundreds of dollars off your student loan payment by lowering your interest rate. To qualify, you’ll need good credit, which takes time to build. While you can’t refinance until you at least have a post-college job offer, you can start establishing credit now.

 

4. Get a credit card (but don’t carry a balance)

Student loan refinancing isn’t the only thing that demands good credit. Almost everything you’ll need or want to do after graduation — rent your own apartment, buy a car, travel on the cheap with credit card points — requires a strong financial track record. The easiest way to establish good credit is to get a credit card, use it and fully pay it off every month.

 

As a student, you’re limited in your credit card choices because you don’t have much of a credit history. Your options are:

  • Get a secured or student credit card. These cards require a deposit (secured cards) or that you have an income (student cards), but they’re designed to help you get started. Over time, you can add other cards with more perks, like cash-back and travel rewards.
  • Ask a parent to add you as an authorized user on their card. This gives you a copy of the card to use, but keeps the payment responsibility on them. Before going this route, double check that the card company will report the card activity to the credit bureaus (the companies that create credit reports) on your behalf. Otherwise, it won’t help your credit.
 

Having a credit card will only help you if you spend within your means and consistently pay off the balance on time. Otherwise, you’ll rack up interest charges and be stuck with debt you can’t afford.

 

By doing these four things, you’ll emerge from your college bubble ready to take on the “real” world.

 
 

*Subject to credit approval. Terms and conditions apply.

 

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Photo of graduation cap on top of a pile of money
2019-10-21
Financial Aid Options for Middle-Income Families

It’s no secret that college comes with a hefty price tag. Every year, families have to figure out how they’re going to pay thousands of dollars in school bills. While some may have the resources to pay tuition, many just do not have that kind of money lying around. Thankfully, there are plenty of options when it comes to reducing the cost of college. We’re sharing the steps middle-income families can take to secure various types of financial aid.  

FAFSA

If you’re looking for financial aid options, you should start by filling out The Free Application for Federal Student Aid, better known as the FAFSA. Even as a middle-income family, you may still receive some need-based aid, especially if your student plans on enrolling at a higher-cost school. Further, many scholarships require the student to
fill out the FAFSA anyway. Over $120 billion are awarded through federal grants, work-studies and loans every year, so why not throw your name in the hat? The FAFSA opens October 1 every year, and you can apply as early as the year before your child’s first day of college. The earlier you apply, the more likely your child is to receive financial aid.  

Scholarships

Perhaps the best thing your child can do is research and apply for scholarships, and it pays to go local. Many locally-owned businesses and organizations offer scholarships for graduating high school students. You or your spouse could also ask your employer if they provide any scholarships or financial aid for employees’ children. After exhausting local options, your child may want to research national opportunities. A quick web search could reveal countless free scholarships – Niche®, Fastweb®, and eCampusTours® are an excellent place to start. Just remember, scholarships are not exempt from internet scams, so do your research and make sure they’re legitimate. The FTC warns families to be cautious if the following lines are included in the application:
  • “The scholarship is guaranteed or your money back."
  • "You can't get this information anywhere else."
  • "I just need your credit card or bank account number to hold this scholarship."
  • "We'll do all the work. You just pay a processing fee."
  • "The scholarship will cost some money."
  • "You've been selected" by a "national foundation" to receive a scholarship – or "You're a finalist" in a contest you never entered.
Source: FTC   Finally, seek out the colleges that offer the best financial aid packages. Student Loan Hero recently highlighted 50 U.S. Colleges With the Most Generous Financial Aid Packages, and yours may be on their list! If it’s not, reach out to your school’s financial aid office, and they’ll be happy to provide you with all of your options.  

Tuition Discounts

While you’re asking about scholarships, inquire about tuition discounts.   Sibling Discounts: Sometimes, if more than one child is enrolled at the same college or university, the school may offer a tuition discount. Often the discount is only applied to one sibling’s tuition, but it is still helpful for the family’s overall finances. These discounts can range from a flat rate to a percentage off each semester or each year. If your children are planning on enrolling at the same school, this option is worth seeking out.   Military Discounts: Colleges may also offer discounts to military veterans and their families. The Veterans Access, Choice and Accountability Act of 2014 ensures veterans and dependent family members will not be charged out-of-state tuition if they meet specific requirements. Again, check with the school’s financial aid department to see if they offer “military-friendly” discounts.   Alumni Discounts: If you attended your child’s school of choice, your child may be eligible for scholarships, discounts, or other benefits. Many colleges have legacy programs, competitive scholarships, or even special legacy tuition rates. If you have other family connections to the university like grandparents, make sure you talk to an admissions counselor about the financial aid options available.  

Tax Rewards

Middle-income families are perfectly positioned to receive tax credits for college expenditures. For example, the Lifetime Learning Credit provides a 20 percent tax credit for the first $10,000 in yearly, qualified tuition expenses. Programs like this, as well as tuition savings plans, offer a few different ways for middle-income families to receive tax benefits.  

Federal Loans

If you’ve taken advantage of all your aid options and find you still have a debt to pay, it may be time to consider loans. Non-need based federal loans such as the Unsubsidized Federal Stafford Loan for students and the Federal PLUS Loan for parents can bridge whatever gap you find in your aid and your expenses. Federal education loans generally have low-interest rates or may be tax-deductible, so they’re a smart alternative to using a credit card, for example.  

Private Loans

You may find that you still need financial assistance after exhausting all the options above. If that’s the case, private student loans may be an option. We always recommend you take advantage of grants, scholarships, and federal aid before taking out a private student loan. To learn more about ELFI’s private student loan options1, click here.  

Other Qualifications

Remember that financial aid in the form of discounts and scholarships aren’t always one and done. Even if you’re getting a scholarship based on your family history or some type of local competitive scholarship, you may be required to meet certain qualifications to receive the money. Sometimes you might be required to complete a number of service hours or stay enrolled in school full-time to keep your scholarship, for example. Make sure you know any additional qualifications or requirements before applying for the scholarship or another type of aid - you don’t want to be caught off-guard.   The cost of college can present a challenge for families at all income levels. If you find yourself in that position, don’t despair. The options in this article are a good place to start searching for financial assistance. No matter what, don’t lose sight of the end goal: getting a degree and ultimately establishing a sustainable career. If you’re already looking for financial aid, you’re well on your way.    
1Subject to credit approval. Terms and conditions apply. Note: Links to other websites are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site. SouthEast Bank does not control the content of these sites.
Woman holding a smartphone
2019-10-15
Best Apps for Budgeting in College

Managing money is hard, but budgeting in college? That’s a whole different ballgame. For a lot of students, you have so much to worry about with classes, work, and other involvements that finances often slip your mind. So how do you hold yourself to a budget when you can barely remember to feed yourself dinner? Luckily, we live in an age full of apps to help you get a jumpstart on budgeting and money management. Here are a few of our favorites.   Mint®. Mint is a free mobile app where you can view all of your banking accounts in the same place. It automatically updates and puts your transactions into categories so you can see where all your money is going - and where it’s coming from. It also recommends changes to your budget that could help you save money. Its features include a bill payment tracker, a budget tracker, alerts, budget categorization, investments, and security features.   PocketGuard®. Like Mint, PocketGuard allows you to link your credit cards, checking, and savings accounts, investments and loans to view them all in one place. It automatically updates and categorizes your transactions so you can see real-time changes. PocketGuard also has an “In My Pocket” feature that shows you how much spending money you have remaining after you’ve paid bills and set some funds aside. You can set your financial goals, and this clever app will even create a budget for you.   Wally®. This personal finance app is available for the iPhone, with a Wally+ version available for Android users. Like other apps on this list, it allows you to manage all of your accounts in one place and learn from your spending habits. You can plan and budget your finances by looking at your patterns, upcoming payments and expenses, and make lists for your expected spending.   MoneyStrands®. Once again, with this app, you’ll have access to all the accounts you connect. Its features allow you to analyze your expenses and cash flow, become a part of a community, track and plan for spending, create budgets and savings goals, and know what you can spend without going over budget.   Albert®. A unique feature that Albert emphasizes is its alert system. When you’re at risk for overspending, the app will send you an alert. The app also sends you real-time alerts when bills are due. Enjoy a smart savings feature, guided investing, and the overall ability to visualize your money’s flow and create a personalized budget.   Before you download any budgeting app, make sure you check out the reviews and ensure it’s legitimate. Because a lot of apps ask for your personal financial information, it’s essential you verify their legitimacy before entering your account number. Listen to what other people have to say and then choose the option that works best for you, because not every app will be perfect for everyone. Budgeting in college may be hard, but downloading an app is just one way you can make it easier. Maybe you don’t want to use an app at all. If you’re in that boat, you can check out some other approaches to budgeting here or here.   Note: Links to other websites are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site. SouthEast Bank does not control the content of these sites.