Establishing Good Credit For The Home Schooled
by Howard Freedman
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Howard can be reached at email@example.com
Making the shift from the individualized homeschooling to a broader and more diverse academic and social environment can be overwhelming especially in terms of peer pressure and money management. Therefore, the importance of understanding your financial aid award, annual budget and how to fund it should be an integral part of the home-schooled curriculum. In this way, more rational and fewer decisions can be made before and not after the funds are needed.
Though there is no doubt that a college education is one of the best investments money can buy, it is all too often unfortunate when poorly managed and delinquent bill payments adversely impact your credit score, future employment, cost of borrowing or just trying to get a positive start after graduation.
Regardless of the college attended, class rank, or major, a credit card score makes no distinction when it comes to tracking credit activity for the rest of your life. Unlike a degree that is earned by choice, a credit score and report is not. Therefore students should understand how their credit and repayment history and other factors determine future interest rates for a home mortgage, new car loan, and refinancing. Their credit report will also be used by employers, insurance agencies and so on, to evaluate dependability, integrity, character that impact a student’s career opportunities after college.
The good news is that credit cards are relatively easy to obtain especially for incoming college students. The bad news is the evil that may if you fail to read the terms and conditions for your credit card. Credit card companies know what it takes to target or solicit students through programs tailored to their needs and spending habits. Enticements from free gifts and promotions at student registration, credit cards with school logos to low or teaser rates and so on are ways many credit card companies use to allure students to credit cards that may prove to be prohibitively more expensive in terms of the overall cost of credit.
Although there is no simple answer to this ever-growing epidemic, I will simplify the fine print to help students to better understand what they need to do.
Interest Rates and Late Payments
Credit cards are not free if you do not pay your bills on time. This means that a credit card company can charge a flat dollar late fee (usually $20 to $40 and more) and interest at a default rate (15 percent to 25 percent or more) going back to your first purchase date.
Assuming a store reduced a pair of designer jeans from $75 to $50. The student uses their credit card with 0% teaser interest rate but does not pay their credit card bill on time. Consequently, the credit card company charges a $39.00 late fee and let’s say $5.00 interest making the cost of those sale jeans $94 ($50.00 and $44.00 versus $50.00. Another person making the same purchase and paying their bill on time got a bargain and took a further step towards building a positive credit history.
Students needing credit cards would be best off by working with their parents or another adult that has established credit. Set up a chart to compare each teaser (very low rate) rate that won’t last long, the billing cycle, grace periods, late fees, how default interest rates are determined and calculated if you do not pay on time, methods of payments to pay online and associated fees and credit limits and increases. In this way, the student will be able to compare the best deal. It is also a process in which a parent should oversee based on their experience. Here are some Web sites that can provide further information: www.bankrate.com or www.creditcard.com.
Credit Limits are the spending limits (the allowance) that can be spent on the credit card. Students without a budget tend to spend more than they can afford. The results are late fees, added interest and a negative statement on their credit cards. They should also realize that they may not be able to use the card again until they pay their bill. That is why it is both dangerous to spend up to the limit.
Assuming a student had a credit card limit of $500 that they reached the last day of the billing cycle which was September 2nd. The bill was received on September 8th and due on September 15th. That means that the credit card was not available for use from September 3rd through September 15th when it was paid. This is when students apply for another credit card as this same scenario will only compound the problem and their credit score.
Billing Cycles and Payments
Billing cycles are the dates of the purchases made for the current credit card statement. Grace periods (time from the billing statement to the payment due date) is the time period in which the payment should be made. These grace periods can be tight especially for students who are trying to build a credit history. If the student has the money to pay they should pay it on the line to prevent the uncertainty of the mail and when the payment was posted. If they do not have enough to pay the full bill they should pay something to eliminate the late fee and a much higher default interest rate. Ignoring the bill will only make a bad problem much worse.
The Credit Report
Beyond a Student’s Degree is that a Credit Score (the number) and the detailed credit report. This report is available to every consumer of these and other online websites.
Lenders use 3 primary service providers Equifax, Experian, and Transunion to determine creditworthiness. The scores using different criteria range from 300 (worst) to 850 (best) are used to market their cards, offer rates and criteria for approval. Here are some of the criteria that determine the score.
• Payment History: Delinquencies, defaults, and collections
• The amount owed in credit card and other debts
• Number of recently opened credit card accounts
• Types of credit the consumer uses
• Late payments usually stay on your record for 7 years
• 30-day delinquency normally affects your credit for 1 year
My top 10 List for Credit Card Management
1. Ignore free and pre-approved credit card solicitations that may be more costly than you think. \
2. Review the college budget in your award letter and avoid nice to have. Be sure to have the money to pay for purchases in full.
3. Limit the number of credit cards to two at the most. Be sure to know when the bills are due and the credit limits.
4. Comparison shop for cards based on the information in this article. Research the best credit card deals such as on. www.creditcard.com and www.bankrate.com
5. Never take cash advances from credit card companies. The fees will be more expensive than you think.
6. If you use a credit card, make a small purchase and pay it off quickly to establish positive a high credit score.
7. Establish a payment calendar for ongoing and credit card bills. Pay your bills online to avoid mailing delays and expensive late fees and interest.
8. Look for ways to reduce expenses when possible. Seek side jobs such as babysitting etc used to pay off credit card debt.
9. Do not accept store credit cards that offer discounts but have very unfavorable rates and payment terms.
10. Always check your credit card scores at least annually to review and correct your activity. Activity.
Final Points of “Interest”
Borrowing and the use of credit is an integral part of our economy. It is a reality that goes hand in hand with formal educations and planning for the future.
We should all be grateful for what money can buy but not buy more than we need. Create future opportunities by coupling a good education while establishing great credit.
Howard Freedman is a financial aid consultant and president of Financial Aid Consulting. His Web site is www.financialaidconsulting.com