Tying the Knot on Credit Scores

July 18, 2018

Credit scores show institutions that may lend to you, if you’re a responsible borrower. It takes time to build credit and once you have, it’s important to keep it. If you aren’t sure how to build credit, check out our building credit blog here. When dating or in any type of romantic relationship, there are certain things about each other we learn pretty quickly. What our partner may like to eat, their favorite type of music, who their friends are, what’s their best angle for a selfie. We’re willing to bet that learning your partner’s credit score isn’t usually at the top of that list.

As your relationship progresses and you look to the future with your partner, your credit scores must be discussed. It’s important to understand where you both stand with your credit and how, or if you both can improve your scores. The importance of good credit cannot be underestimated. Credit is key to determining your ability to borrow money or to take out a loan, so having good credit, both you and your partner, will leave you both with better options. You both will have the ability to select a loan such as a mortgage for a home or a credit line to pay for your wedding that may even benefit you both in return! So how can you work with your significant other to raise their credit score and secure your financial futures?

Education & Open Communication is EVERYTHING

If you have great credit, you must be doing something right! Take the opportunity and show your partner what they can be done regularly to improve their credit score. It’s important to keep in mind you shouldn’t shame your partner for their finances in the past. Remember, it’s likely that your partner did not even realize how important a credit score was!

Your partner needs to feel like they can openly address financial questions and you can both have an open and honest conversation. Try to be encouraging and share your knowledge with them. Educate them on how reviewing a credit report annually to make sure there are no mistakes is important. Sit down together and walk through the first one together.

Be sure to find the problems that caused the poor credit in the first place. Was it missed payments, maxing out of credit cards, or just a lack of any credit history? Together you both can work to find a solution to this problem. There are tons of resources on the web where people can go to learn more and become more financially literate.

Build Trust

If you have good credit and you trust your partner, we mean really trust your significant other, then add them as an authorized user on your credit card. If this is something you’ve really thought about, be sure to use protection. By “protection” we mean, you’re still the primary cardholder and all responsibility of the card is all still yours.

One small slip-up can leave you with an unfortunate looking future … well at least as far as your credit score is concerned. If your partner decides to cheat on you financially and use the card to make purchases that they can’t afford and you don’t have the funds to pay for them either – it can negatively affect your credit score.

Now back to the positive of adding your partner onto your credit card. As the primary cardholder, your credit will not be affected if you add an authorized user. Your partner’s credit report will show the account history. Therefore, if you haven’t missed a payment on the card and haven’t maxed out the available credit, your significant other will get to reap those benefits. This is especially beneficial for partners who lack credit history.

Work for it

Another way in which your SO can build or repair their credit would be to open up a secured credit card. As NerdWallet explains, it is a secured credit card based on a cash deposit that you make when you open the account. They also explain that people who choose this option generally see their credit score improve in about a year if done responsibly. The deposit is usually the credit limit to which you are permitted. For example, if you put down a deposit of $500.00, you would have a credit limit of $500.

Now, don’t think because you put a deposit down you won’t accrue interest. Every other aspect of a secured credit card works the same as an unsecured credit card meaning if there’s a balance you’ll be paying interest. Secured credit cards are also accepted wherever unsecured cards are accepted.

Here are some additional tips to using a secured credit card responsibly as per Nerdwallet:

Make only 1 or 2 purchases per month
Only use for small purchases
Pay the full balance every month – to not collect interest
Pay the balance before it’s due.

If you keep the account open and pay your bills on time, you’ll eventually get back your deposit. With a good payment record on the account, most secure card providers will offer the account holder an unsecured card. If you don’t make your payments, then the cardholder will take the deposit, hence why it is a secured card because it is secure for the lender.

The Future

As every couple is unique so too are their credit histories. Whether it’s you or your significant other looking to repair or build credit. We just reviewed three proven methods. It’s important to keep in mind that not all credit is approved. You’ll still need to qualify for most of these options except for the authorized user on a credit card. Remember, this is your financial security as a couple. Your financial security will lay the foundation for the decisions you choose to make regarding finances. Keep working together to reach your goals and we are sure you’ll be so glad that you did!

Learn How to Talk With Your Partner About Finances

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.

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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.

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.