You have your high school diploma. Now what’s next?

You got your diploma, went to grad night, and stayed out until morning. What are your plans? You may have plans for college locally or away. You may have a job lined up for the summer. That’s what’s next for you, but what’s next for your money?

1. Have you opened a checking account? Was it at a bank or a credit union? If you opened your account at a commercial bank, you must enjoy paying fees to the bank. If you don’t enjoy paying fees to a bank, you can open your checking at a credit union and keep more of your money. It is not that credit unions don’t charge any fees, they just charge fewer of them than the banks do. Are you required to have a minimum balance in your bank account to avoid monthly service charges? Are you required to have direct deposit for a free checking account? If you don’t maintain these things, how much is the monthly charge? $10? $15?

Generally, at credit unions that is not the case. Most credit unions often offer checking accounts that are free of fees. There are no monthly service charges or minimum balance requirements. Direct Deposit is encouraged but not a requirement for a free account. Credit unions believe it is better for their members to keep their money than to take it from them in the form of banking fees.

2. Are you working? Then you should be saving money. Save what you can afford. If you have a car, you will thank yourself for saving some money. Cars don’t take care of themselves. Tires will go flat, batteries will go dead, hoses will spring leaks, and belts will break, all costing you money. Put some money away for that inevitable day when something goes wrong with the car. Just to tow your car five miles may cost you $100! Do you have $100 in your savings today? If not, you should have that as a minimum start amount and keep saving.

While we are working on savings, let’s talk about an emergency fund. As time goes by, an emergency fund will be important to you. A general rule of thumb for an emergency fund is six months worth of income. The emergency fund exists to fill gaps in your budget when unexpected expenses arise. Not just for fixing your car, but for emergencies such as getting transportation to visit sick family members, or your own emergency medical bills, or paying for your insurance deductible after a car accident are just some examples of good uses for your emergency fund. That emergency fund exists in case we find ourselves unemployed. That six months income in the fund may be what we need to bridge our income gap between jobs! So what’s the best way to save? Try allocating a portion of your check into a savings account as part of an automatic deposit or transfer. Think about it. If you get paid twice a month, that’s 26 checks in a year, if you only took $10 per check and had it automatically deposited into your savings, that’s $260. Now what if you doubled that to $20 per check? That’s $520 you’ve saved! And since it’s being automatically deposited, you probably won’t even notice it coming out of your check.

3. Do you have credit? Pay your bills on time so you don’t incur any bad credit and to help build strong credit. An unpaid bill can become a collection and hurt your chances to access credit. A cosigner can be very helpful in accessing credit such as a car loan or credit card. The cosigner is on the loan with you so they would suffer if you fail to pay on time. The cosigner is essentially putting their good credit at risk to help you. This should be treated with great respect. You must stay on top of any credit commitments made with a cosigner.

Are you more independent? Don’t want a cosigner? Perhaps a secure Visa or Master Card is in your future. Meriwest Credit Union (as well as many other CU’s) offers a secure Visa card that can be started for as little as $300. Send a $300 check with your application and, if approved, your will receive a $300 Visa credit card. Want a higher credit limit? Increase your security deposit. Your incentive is that if you don’t manage the card well you are putting your savings at risk. If the card is not paid on time, it could be closed and paid off with your secured savings. You would receive whatever is left after pay off. Be aware that these cards usually have an annual fee as well.

Whether you initiate credit with a cosigner or through the secured route, it will take some time to get yourself established. Rome was not built in a day and we don’t build a credit history in three months! Check CreditKarma.com to see your credit score and watch it grow as you manage your credit.

4. Do you have a car? Do you have adequate car insurance? There are a lot of car insurance companies that advertise very low rates and for good reason! They mainly quote the cost of the California Minimum Insurance. What are those minimums?

$15,000 for injury/death to one person.

$30,000 for injury/death to more than one person.

$5,000 for damage to property.

Let’s say you bought this exact amount of insurance. It is very inexpensive. Why? You have very little insurance. Let’s suppose you hit a new Mercedes Benz E-Class sedan from behind and the owner gets a neck injury like whiplash. If the car is totaled, it will cost you over $50,000 to replace it. How much do you suppose the hospital bills would be for whiplash? $100,000? $250,000? Whoa! More than that? Yep.

In this case, your insurance company will give the victim $5,000 for the damage to their car and $30,000 for the hospital stay. You are on the hook for the rest of it and it could be in the hundreds of thousands of dollars. If you don’t have hundreds of thousands of dollars in your emergency fund, you might want to budget for adequate insurance. It may cost you more than the super cheap minimum insurance, but it will help you sleep at night knowing you are not at risk of filing bankruptcy for a car accident.

These four things, opening a checking account, starting your savings, establishing your credit and properly insuring your car can make your financial life so much easier and put you ahead of the game. Many college graduates are not ready for their lives financially when they leave college. If you start your post high school planning with these four simple ideas, you can build a financial foundation that will serve you and your future family for the rest of your days.

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All About Business Credit Cards
On Wednesday May 14th at 10 am PDT the Credit Union Guy, Meriwest CU's Community Relations Manager, Greg Meyer, will take part in a Google+ Hangout with the team at Credit Cards.com to talk about understanding Business Credit Cards. It's fifteen minutes that will bring you up to date on the differences and the proper uses of a business card. Here is the link to watch: http://bit.ly/1i20MX4 .

Free Credit and Identity Theft Workshops

Preventing Identity Theft
Wednesday, May 21, 2014 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

Identity theft is on the rise. After the Target Store breach, what more can we expect and how do we protect our hard earned money from these thieves? We share some answers with you.

Credit Myths & Credit Repair
Wednesday, May 28, 2014 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

Do you know all there is to know about credit? We review the top ten myths of credit and explain how paying bills, collections, credit inquiries, and divorce can effect your credit standing.

Minors with Credit Cards-Good idea?

As minors cannot sign a contract until they are 18 they cannot be involved as a co-signer on a card. A parent cannot cosign for their kids as the kids cannot sign on to the card with them. Cosigning for your kids is a relatively straightforward process, both of you will be on the application and both will sign. The parent’s credit will be evaluated for approval. If it is approved, the proper management of the card and the parent’s credit background will elevate their adult child’s credit score. Of course, if the card is not managed well or the parents have a lapse in managing their credit, that can be detrimental  to the young person’s credit score. 

 

 

However, being younger than 18 does not lock a young person out of having a credit card. They can be placed on an established credit card as an authorized signer. This gives them all the rights of usage without the responsibility. But it will start to build their score for them provided the parent has a good score to start with. Yes, the minor can start building that FICO score while they are a minor. The best option:  Parents can remove the minor from the account anytime they wish! 

 

This is especially helpful when the card has been misused.

 

The major disadvantage of minors with credit cards is their occasional lack of responsibility. They might use the card for parentally unauthorized usages like a Miley Cyrus concert or go hog wild buying MP3’s on iTunes or Amazon. There are a variety of opportunities for minors to misuse a card. It is up to the parent to ensure the child understands the limitations and responsibilities related to managing the card and teach them how their current authorized usage will benefit them in their adult life.

 

One option that families have in training their kids to manage money is the Meriwest Credit Union Flow Card. The Flow Card is an electronic checking account (no checks allowed) that is managed by a parent and their child. Flow Cards come with free online banking, online bill pay, and mobile banking options. Your child cannot overdraft a Flow Card! The account is ideal for those students who are aged 13-24 years old. It gives parents an opportunity to teach their kids about managing money with a debit card as the parent and the kid will both have access to the account information. This is good training for eventually managing a credit card.

 

Meriwest Credit Union is an Equal Housing Lender. All accounts are insured by the NCUA to $250,000.

College Students Using a Credit Card

The best way to use a credit card is only for emergencies. A blown transmission is a good example. Not everyone has $2,000 to fix it when it goes. But that transmission is an integral part of your car and your car is an integral part of your economic development; i.e. it gets you to class and to work on time. So fixing that transmission quickly and being able to pay it off over time may be very important for many students.

This brings me to my second point beyond emergencies, use your card to only purchase assets; not liabilities. The transmission is an asset to your car. Liabilities? Vacations are a liability. When you pay for a vacation on a card, you are only deferring the costs. After the vacation, you only have memories. Pizzas, movies, concerts, fancy dinners, fashionable splashy clothes and such are drags on our monthly budgets if we decide to place them on our card. These things have virtually no value after we pay for them and have the experience of the movie etc. You want to go to a concert or a movie? Save your money for it. Make it a special part of your budget. Paying for it with saved money is much more satisfying.

Use the card to purchase assets. Your school books are an asset to your education. If you use your card to buy household items, use it for furniture like a couch. Then you are buying an asset for your house. Then, when you sit on that couch and write out your checks for your bills, you are sitting on your asset. J (A little banker humor.) But, think about it, if you suddenly fall on hard times, you can sell that couch and pay down your card. You can’t sell the memory of a concert or the taste of a meal from three months ago.

Also, whenever one uses their credit card, consider how you will pay it off before you charge it!

Here are some other ideas fresh from my blog:

1. When establishing your first credit, consider using a secured credit card; a card where you have to make a deposit in a savings account in order to establish and maintain the card. The money on deposit is your collateral for the credit. You now have an additional incentive besides maintaining our credit to be on time with your payments; your own money is at stake. Meriwest Credit Union offers this type of Secured Visa Card. Info on our Secured Visa Card is here.

2. Another secured type of credit option is the credit union share account loan. Most credit unions have this. You make a deposit to an account and then take a loan out against the funds in the account. As you pay it back on time, your CU lets the credit bureau know and it helps get you get established in managing credit. Secured Share Account Loan info is available here.

3. When you get your first credit card, do not celebrate. There are those who like to go out and get a quick pizza or a movie when their new credit card arrives. A new credit card is not a good excuse to go out to spend and celebrate.

4. Avoid gas cards issued by Shell, Chevron, and other oil companies. Those who are new to credit are often unaware that gas purchases on oil company cards have to be repaid monthly. Only repairs and major purchases, (tires, transmissions, etc.) can be paid over time.

5. Check your credit report annually at AnnualCreditReport.com to verify your current outstanding credit and prevent identity theft. Do you see a card on your report you didn’t order or apply for? If you are reviewing your report annually, you can take action fast and stop identity theft.

6. It seems simplistic, have a budget and plan your spending. A good budget can keep you from using your credit cards to supplement your monthly budget and help you pay off the debt you already have. 

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Our next Free Financial Education Workshop will take place Dec. 11th at our Main Office. 

Credit Myths and Repair
6:30pm to 7:30pm
5615 Chesbro Ave
San Jose CA 95123

Please RSVP with Greg Meyer at gmeyer@meriwest.com or 408-365-6328

Should I close a Credit Card? Will that hurt my credit score?

A question I hear often is, “Should I close out old credit cards that I don’t use anymore?” Is that a good idea? First we will talk about why closing a credit card may not ever be a good idea and then we can look at some reasons to close out a credit card.

Closing credit cards should never be taken lightly. Closing a card removes that available balance from our overall available credit. Removing these available balances by closing the cards can reduce our FICO/Credit score. 30% of your score is based upon the ratio of used vs. available credit. Reduce the ratio and reduce your FICO score.

Example: A person has $20,000 in available lines of credit and has $5,000 charged up. They are using 25% of their available credit; a 1:4 ratio of used credit to available credit. Then they close a credit card with a $5,000 available balance. This decrease in their available credit, from $20k to $15k, increases the percentage of credit they are using to 33% and takes them to a lower and less desirable 1:3 ratio in credit usage. This will lower their FICO Score.

Closing cards can be a big deal if consumer credit cards are your only form of credit. If you have other types of credit, a mortgage or car loan for example and have other credit cards, closing one card may not be a big deal. But if one has a thin or minimal credit file, it could be detrimental.Also, the history of your card usage will drop from the report after 18 months and it will no longer be a factor in your FICO score. Ouch!

Why close a card? Fees. Some cards have instituted annual fees; one must pay an annual fee just to possess the card. These annual fees can range from $25 to $100 depending on the card and its features (rewards, vacation insurance, travel services, etc.). If the fee is too much for you to afford or you just won’t pay it on principle, then it might be time to look for a new card to replace this one or close it altogether.

Interest rates can be an issue for people who carry balances. An increase in the APR of 3%, say from 15% to 18%, can cost a cardholder an extra $150 over a year on a $5,000 credit card balance. If the APR is a concern, I would recommend finding a lower rate replacement. Credit card issuers will often offer reduced rates for balance transfers. This may be an opportunity to transfer the balance to a new card with a lower rate and close the old card.

The card has been stolen or compromised by an identity thief. Good reason to close it. Often your card issuer will offer to replace the card with an entirely new account, transferring your balance to the new account.

Sometimes people get tired of making payments and are simply through with debt. They will cancel their cards to prevent further accumulation of debt. If you are ending your relationship with debt, that may be a good reason to close a card or two. That being said, keep one general purpose card such as a Visa or Master Card open for emergencies. Go to McDonalds once every six months and buy yourself a Happy Meal for lunch. Pay that bill at the end of the month and your card will remain active. Do this every six months to keep that card active. You never know when you will need it! 

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Our next Financial Education workshop will be taking place at our Sunnyvale Financial Center at 563 E. El Camino Real in Sunnyvale, next to Togo's Sandwiches. To attend, please RSVP with Greg Meyer at gmeyer@meriwest.com or 408-365-6328.

Credit Myths and Repair - Learn how to access your credit report from all three credit bureaus and your credit score for free. How do inquiries effect your score? What happens to your credit after you pay a collection? Have a late payment? Get a divorce?

6:30PM - 7:30PM on Oct. 23rd 

Sunnyvale Financial Center

Meriwest Credit Union

CAR SALE!!!

 November 9th and 10th at the Meriwest Credit Union Main Office 

5615 Chesbro Ave, San Jose CA 95123

Come to see our wide selection of late model, gently used cars offered at bargain prices by our MCU approved dealers.

Incoming Freshman: Easy Stuff for Managing your Money

Cool, you have graduated high school and have moved on to an institution of higher learning aka a university or community college. Maybe you’re self funded, parent-funded, or using a variety of grants and/or student loans to make your ends meet. Over the next four years, you will likely be handling more money than at any other time in your life so far.

As you start your classes, you will find there are a lot of demands on your wallet. Books and tuition are a large part of this demand. But it is managing your living expenses and personal entertainment that calls for the most attention. Take some advice and don’t throw money out a window!

1. Open a checking account at a credit union.
• Why a CU? No monthly service charges. Reduced fees. More Free ATM’s.
• Use your online banking to track your checking usage. Don’t be afraid to check your balance daily on your phone, laptop, or tablet, it’s free!
• Open up a savings, too. Set up a small amount to automatically transfer to the savings monthly. You may not miss the money but it will be there when you need it. $20 a month can be a lifesaver down the line.
2. Organize: Create some files for your important documents and statements. The basics will include:
• College File: This file has your documentation for your financial aid; loans or grants. It should hold the receipts for your tuition payments.
• Banking File: This file has all your bank statements (if you are not using your online banking). If you have a credit card you are managing, the statements would go here as well.
• Bills: This file is where your monthly/quarterly records of bills shall be filed away; i.e. rent, cable bills, cell phone, heat/electricity.
• Find a locking cabinet at a yard sale or second hand store to save your documentation. A simple lock is often all it takes to keep honest people honest and discourage would be identity thieves.
3. Budget: You have a limited amount of money each semester from your student aid grant or loan receipts.

·        Use any money left over after paying your tuition and book expenses to help pay for your living expenses. That money left over after paying your school expenses is not a bonus to be spent at parties and spring break. It is what you have to feed and cloth yourself.

·        Take the amount and break it out in even amounts for the next few months until your next aid payment is expected.

·        Plan for your expected expenses by creating a budget for each month. You don’t have to wait until October to create the budget for October.

·        Saving money should be the second item in your budget after paying your rent. See #1.

4. Avoid owning a car. This may sound crazy in “Car Culture” California, but in the big picture, owning a car is a major expense.
• Paying for gas, insurance, maintenance, and repairs can put a major crimp in your happy fun time at college.
• Colleges like San Jose State are close to all manner of stores and restaurants. There are lots of great shopping and eating options within easy walking or bike riding distances.
• Besides, municipal transportation passes/bus passes are so much cheaper than gas, tires, and car insurance!
5. Don’t get talked into applying for a credit card. You don’t need it.
• Of course, if Mom or Dad set you up with a card that you will manage together, that is a different matter. That card is in your possession for emergencies more than likely. Emergencies involve medical issues, police issues, fire, or floods. Running out of beer or pizza does not constitute an emergency. There is no such thing as an emergency night at the movies or an emergency concert.
• Manage the card well and, if your name is on the account, you will build a strong credit record while you are enrolled in college.
• Mismanaged cards don’t just get you into expensive credit card debt at high interest rates, it can affect you emotionally through depression and that can affect your studies.

Some of these suggestions may make your life easier. Some of them may save you money. The final word is that only you can make decisions and manage your finances. No one will do it for you. Do it right and you will thrive. I don’t like to think about the alternative! 

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Our next free financial literacy workshops are coming August 21st and 28th. 

• The 21st we will have our Real World Budgeting Class for Teenagers. The class is held here at our main office in our Training Center at 6:30pm. Click her to RSVP! 

• The 28th we will be offering The Myths of Credit and Credit Repair. This class will also be held here at our main office in our Training  Center at 6:30pm. Click here to RSVP!

Over Your Head Financially? Here are your top ten indicators...

 1. Carrying a balance on a credit card. If you are not paying them off, you are paying interest. If you could shift all the interest you paid on your consumer credit cards to your retirement account, how rich would you be? 

2. You use payday loans to make ends meet at the end of the month. Bad consumer! 

3. You’ve been turned down for a consolidation loan. This is a sure sign you are already over-extended and that your debt-to-income ratio is too high. Time to budget your expenses and start paying down what you owe! 

4. You’re hiding your spending behavior from family members. This red flag indicates that you are aware of your personal finance problems, but are unable to acknowledge it. Fighting with your spouse is a related indicator as financial troubles often lead to domestic trouble.

5. You finance your vehicle for more than five years. This may be a clear sign that you’re buying more vehicle than you can reasonably afford.

6. You get more than one late notice per year. On occasion, everybody may let a bill fall through the cracks and forget to pay it. But if you find yourself getting multiple late notices for bills, especially for utilities, then that’s a signal that your finances may be in serious trouble.

7. You get more than one bounced check per year. Again, most folks have had an occasional overdraft of their checking account. But if this happens more than once per year, it’s usually a sign of trouble.

8. You need a co-signer to get a loan. Those without a credit history can ignore this warning sign. However, for everyone else, the need for a co-signer indicates that banks no longer find you credit worthy.

9. You find yourself borrowing from your family and friends. We have heard that borrowing from friends or family is a surefire way to sow the seeds of discontent — especially when you fail to pay the money back.

10. You lack an emergency savings account of at least three months living expenses. Those who are living from paycheck to paycheck can be completely derailed by even the most modest unexpected expenses, such as the need for major car repairs.

Credit: Credit Unions are providing their members and the public with more financial education classes than ever. This is done for free as a community service to their neighbors. Yeah! 

Debit: Over the past year, several national banks have raised fees on their checking overdraft and non sufficient funds transactions. Boo! 

Our Next Financial Workshop:

May 22nd - Preventing Identity Theft -6:30pm
Meriwest Credit Union Main Office at 5615 Chesbro Ave, San Jose CA 95123
RSVP with Greg Meyer at gmeyer@meriwest.com or call at 408-365-6328

The Long Shadow of Bad Credit in a Job Search: How does your credit effect your ability to find a job? This story, from New York Times Business Day section, will give you some insights into how hiring managers view your credit report. Click the link and learn! 

 

Len Penzo - One of the great financial bloggers! Check out his blog here: LenPenzo.com

A History of FICO Scores Part II

In the 1950’s, someone asked the question, how can we judge someone’s credit without having to read the entire credit report?

You see, not only was time an issue, reading the reports and making judgments based on the information in them became an issue. You could have two loan underwriters look at the exact same loan package and come up with wildly different opinions on a person’s credit. Some would give their approval of the loan and others denied the credit. There was no set of rules that told underwriters how to decipher and utilize the information they were gleaning from credit reports. It was all just “someone’s opinion,” very subjective.

Thousands of new borrowers were being approved daily and lenders needed a way to mitigate or gauge risk and develop a national standard for credit worthiness. In 1956, a company named Fair Isaac Company came out with a revolutionary idea; Credit Scores, also knows as FICO Scores.

How does the scoring work? FICO takes several important financial factors into account. The two most critical factors are the borrower’s payments and the balances they maintain. These items make up 65% of the score; 35% for the payment history and 30% for the balance ratio. That’s why a late payment has such a serious effect on our score. Collections are worse for us and our scores. The effect of a late payment on a loan or credit card will start to diminish after 24 months. If one has an open collection, the collection will have the same weight on their score on the last day of seven years as it did on the first day it was placed on the person’s report. The lesson here is very simple, make your payments on time and you will never have to deal with late payment issues or collections.

Balances play a role in our score if we don’t pay them down. 30% of your score is determined by the balances a person is carrying vs. how much they have available. Maintaining outstanding credit card balances by paying only the minimum payment can be very detrimental to your score. We have to make an effort to pay our outstanding balances off. For scoring purposes, the balances are added together and a ratio is calculated vs. the total amount of credit available.

The three remaining factors are our History. How long have we managed credit? That accounts for 15% of our score.

Finally, 10% each is allocated to the types of credit we manage and the number of inquiries made on our report annually.

With this data put into a computer algorithm, a number could be determined. That number would be an indicator of risk. A high number would indicate less risk is involved in lending to a person where, conversely, a low number would indicate a lower likelihood of repayment. This also led us to “FICO Score Lenders;” lenders that only grant credit based upon a predetermined level of score.

What is a “FICO Score Lender?” Typically, our major banks are using the FICO score as the primary determining factor in making their initial credit decisions. Let’s say a financial institution has 300 offices in California. On any given day, each office might send a loan application to their loan underwriting department. The underwriters, the staff who decide credit decisions, might number a dozen but receive 300 applications in one day. Prior to 1956, they would have to view each credit report to make a decision. Now, they enter the social security number of the applicant and the credit bureau gives them a number. If today’s number is 740, then any applicant with a FICO Score of 740 or above will get a further review of their loan package. The borrowers with a FICO Score of 739 or less are declined for credit as they did not make the score. Not only does the FICO Score help us determine risk, it helps lenders render faster credit decisions. Often, we can approve someone based on their credit within 24 hours.

Some may ask if using a score like this is fair. The FICO Score is basically colorblind. Credit is ultimately granted to those who have proven they can manage it well. It is typically declined for those who manage it poorly. Over the years, the score has been adjusted down for times when credit was loosened and adjusted upwards for times when we had to tighten up on the use of credit. Today, most financial institutions are looking for borrowers with a FICO Score of 740.

Are credit unions just like banks on FICO Scores? Not necessarily, credit unions generally take a more holistic approach to lending; meaning they tend to take a look at the “whole borrower,” not just their credit score. Before a credit union renders a credit decision on someone, we will take into account how long this person has been on the job? How long have they have lived in the area? How long have they been a CU member? Of course, a CU will consider their income and debt to income ratios before we provide our final decision. What this means is, if a borrower comes in with a FICO Score at 739, or 735, we don’t automatically decline their loan request. We take a wider look at our borrower to determine their creditworthiness.

Can banks help their clients with loans just like credit unions do? Sure they can, but they don’t! They will tell you they don’t have the time. It takes to much time to make decisions on marginal credit applications. Time is money and we need that money to show a profit to our shareholders.

I used to work for a bank that called itself the “Largest Financial Services Provider in the World.” One of my bosses once said to me, “We need to make profit. If we don’t make a profit, we might as well be a credit union.” As if there is something wrong with that?

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Thank you. I hope you enjoyed our history of FICO scores. If you want to learn more about credit, please attend our next Credit Myths Workshop this Wednesday the 24^th at our Monta Loma Financial Center in Mountain View: 580 North Rengstorff Ave, Mountain View CA.

To RSVP for this workshop, click this link.

Credit Myths and Credit Repair

Credit Myths and Repair    April 24th at 6pm   Monta Loma Financial Center

Learn how collections, credit inquiries, and late payments effect your credit score. What is a FICO score? You will learn how to access your credit report and your credit score for free. Learn from the experts.