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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 

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Working Professional with Less Debt
2018-10-17
Entrepreneurs – The Cost of Starting Out

Starting a business can seem overwhelming, but it takes the right kind of person. For many entrepreneurs, money can be their biggest concern. You’ve got the dream, but you don’t have the dollars. People will often look for assistance using commercial loans to gain the money needed to get started, but what if you already owed thousands of dollars? Let’s take a look at the cost of starting a business with student loans. In this example, we’ll use a pizza place.  

Research and Planning

Before you begin investing your time and energy into a business, understand if and where there is a need for it. Where is there a lack of pizza places? Once you’ve determined a good area where there will be demand for the product look at your competitors. Look specifically at, prices, marketing, branding, and style. Now take a look at the median income for the neighborhood and surrounding towns that your pizza place would be located in. Is it a lower-income neighborhood or a higher-income neighborhood? Understand the area and price your product accordingly. Now that you have a better understanding of what you’ll need to start your pizza place create a business plan. If you’re in need of additional funding for your business this business plan will be of the utmost importance. There are different formats available for business plans, some more traditional while others are fairly brief. Be sure to check online for samples.  

The Cost of Business

Know what your expenses will be. Identify what those expenses are. The SBA has a list of expenses for starting businesses. These expenses include office space, equipment, supplies, utilities, licenses, permits, inventory, lawyer, salaries, marketing costs, and website costs. Once you have a list of your expenses, estimate out how much you’ll need to spend on each. Check out this handy worksheet that illustrates the starting costs for a pizza place. The SBA expense calculator provides an estimation of $18,975 as the starting costs for a business. The estimation includes one-time expenses like equipment, security deposits, and legal fees and monthly expenses like rent, insurance, and advertising. Every business is different, but typically there is some type of investment that must be made upfront. Now don’t forget that if you’re looking to start a business you can use some “startup costs’ as tax deductions. Tax deductions* per the SBA site include costs to get your business operation ready and costs of investigating the creation of a business. Once you have an idea of your expenses and what is tax deductible, you’re onto step two.  

FUN-ds

Here is the “fun” part where many young entrepreneurs get caught up - getting the funds. Not only do younger entrepreneurs not have the dollars but, they owe thousands in debt. That thousand dollar debt is likely due to student loans. According to a recent survey, nearly half of Americans considering starting a business said that student loans were a major barrier to entrepreneurship. Refinancing student loans can help. When refinancing you may get a lower rate or change the terms of the loan. It can help lower your monthly payments, sometimes significantly, giving you more cash in your pocket. Once your personal finances are in order (decreased student loan debt) figure out how much capital you can put towards your business. For this particular step, we’d recommend working with a financial advisor. By self-funding your business you will take on all the risk of the business, not to mention taking funds from all your accounts resulting in penalties. Instead of self-funding the capital fully, try crowdsourcing, small business loans which you’ll want to research heavily to assure you’re receiving the best rate or finding investors willing to provide capital. If you take money from an investor for your pizza place, it’s a venture capital investment. This type of investment is usually offered in return for a share in the company and some sort of power position within the company. Therefore, if you do take on venture capital investments understand that the business is no longer just yours.  

Naming

Once you’ve gained the funds you’re well on your way! Next, you’ll set up the internal structure for your business, register the name for your pizza place, set up your Tax IDS, and get the appropriate licenses. Licenses are usually industry, location, and state-specific so be sure you’re working with a legal team to meet all appropriate criteria or it could end up costing you. All decisions will have an impact on how your company functions, so be sure that you’re taking every necessary precaution and good luck in your journey. Refinancing may not be the solution to all of your money problems, but it’s a step in the right direction. When you’re starting out, all it takes is to get going on the right path to continue moving forward. Don’t forget to open up a business bank account to help organize your business funds from your personal funds. Similarly to refinancing you’ll want to choose a bank with transparency, credibility, and great service.  

Facts About Student Loans That Will Save You Money

*Please note Education Loan Finance is not a registered tax professional.
Guy Investigating FDIC Backed Banks
2018-10-12
FDIC-Backed and Why You Should Care

You know the orange Chance cards you used to draw when you played Monopoly? Remember the one where the little guy was so broke he was wearing his pockets on the outside of his pants? Well, imagine that guy is your bank, and through bad luck or bad decisions, they negatively affect your life. You go to get a loan, and they aggressively try to get you to borrow more than you can afford. Or, when you show up to get your money, they just shrug, and you’re out of luck. Things are different today and the protections for account holders and borrowers for certain banks are better than ever, but how did we get here? What exactly does FDIC insured mean?

Banking used to be very risky.

Believe it or not, that’s pretty much how things were for a long time in the United States, and it happened quite a bit. Lending practices were not necessarily based on sound data and information. More than a third of the banks in the1920s closed their doors, and deposit holders had little recourse. That’s why many people of that generation had a deep distrust of banks and why you may have heard stories of people stashing money in their mattress or burying it in a jar in the backyard to keep it safe.

The creation of the FDIC.

You’ll notice that most people aren’t hiding money in their bed these days, and no one is wearing their pockets on the outside of their pants anymore. Sure maybe no one ever really wore their pants that way, but it could also be because Congress passed the banking act of 1933 and created the FDIC. FDIC stands for Federal Deposit Insurance Corporation, but we usually just say FDIC because the government loves acronyms. The FDIC is quite literally an insurance company and just like other insurance companies, they
provide protection from an unforeseen event, in this case, a bank failure. They also function as a regulatory agency to make sure banks are following laws and guidelines.

What happens when an FDIC insured bank fails?

When a bank becomes insolvent, the FDIC essentially takes over the bank. Almost no matter what, the bank will still have some deposits and assets. The FDIC will try to sell the bank’s deposits and loans to another member bank. In this case, you the customer will find their deposits at a new bank. If for some reason the FDIC cannot successfully sell the bank, they will issue a check to the depositor directly.

It’s not the 1920s anymore, why should I care?

Sure, the Roaring 20s and all its banking peril are long in the past, but you might be old enough to remember the Savings and Loan scandal of the 1980s or the financial collapse of 2008. These were both significant events that wreaked havoc on the banking industry. Banks can still have problems and sometimes big problems. In fact, from 2008 to 2012, 465 banks completely failed. While most everyone felt the effects of the financial collapse in some way, bank depositors were spared significant loss thanks to the FDIC. This is why you absolutely want to make sure your bank is a member of the FDIC.

What else does the FDIC do?

Member banks are subject to strict overview of the FDIC. They monitor debts and assets and help to ensure banks have enough cash on hand for safe and responsible operation. They aren’t just guaranteeing your money, they are actively working to make sure the bank is healthy. Additionally, they work to make sure banks are compliant with the latest consumer and banking regulations.

Are there protections for borrowers as well?

Yes. The FDIC isn’t only focused on depositors, they protect borrowers as well. So if you are in the market for a home loan or you are looking to refinance those student loans, it’s important to pay attention to which lenders are FDIC members. Member lenders are under scrutiny to make sure the debt to income ratios for borrowers aren’t outside what borrowers can afford to realistically pay. You want to work with a member bank to ensure an upfront and transparent process.

Are all financial institutions FDIC insured?

No, not all financial institutions are FDIC members. The FDIC examines and supervises approximately 4,000 banking institutions in the United States.  

Tips for Finding the Perfect Lender

  Sources: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_United_States_(2008-present) https://www.youtube.com/watch?v=dBOFiDpmESI
Millennials Renting Instead of Buying
2018-10-10
Top 5 Barriers to Homeownership for Millennials

Most millennials rent their living spaces and don’t purchase them. Ever wonder why that has become such a common stereotype of the millennial generation? Well according to some research done by Urban Institute it isn’t just a stereotype. It dives deep into this issue to explain the main barriers to homeownership for millennials and how to address them. Here are five of those barriers:

Location-

Millennials are moving to the biggest cities in the country in larger numbers than any generation before. In these cities (like New York, Chicago, and San Francisco), housing prices are extremely high and the actual housing supply for purchasing is low. You can save money in a major city by using mass transit instead of driving or taking cabs.

Starting a family-

In the past, getting married and having children were the life steps that often led to home ownership. Now, we’re getting married and starting families later in life (or not at all), causing a delay in the need to buy a home. If you are wanting to buy a house, don’t let your marital or family status stand in your way. You can save for a down payment now to speed up the process.

Student debt-

The total amount of student loan debt in the United States is at a historical high, and more students are taking out loans than ever before. Many people who are trying to pay off their student loans feel as if they cannot save for a down payment and do not want to add a mortgage on top of their existing debt. Also, a high debt-to-income ratio can make it more difficult to obtain a mortgage. Refinancing your student loan can help you reduce your rate, allowing you to pay off your principal faster and lower that ratio.

Renting-

Typically before taking the step to owning a home, you will rent a place for a few years. Rental rates have continuously risen for years, which is not allowing people to save as much money for their future down payment. This delays reaching that next step by at least a couple of years. You do not have to let this stop you from saving for a down payment if you are hoping to buy a home soon.

Poor credit-

Low credit scores are plaguing many millennials. The average credit score for this generation is 640, which is lower than both gen x and baby boomers as well as the median credit score for obtaining a mortgage loan. Whether those low scores are from lack of credit, high credit card debt, missing payments, or any other reason, there are plenty of ways to bring that score up.  

Consider These Factors before Buying Your First House