5 Things New College Grads Should Know About Money and Credit

 

Let’s start with five things every new college graduate should know about money and credit. We will end with a few words of advice for new grads facing an uncertain economic future.

1. Everyday, more and more employers are now looking at credit reports as a condition of employment. If you are responsible with your personal credit, you will likely be a responsible employee. Manage your credit well and enjoy the low rates and easy availability of money good credit management brings. You will want this when you buy a car or a new home.

2. Review your credit report annually! Reviewing your report annually for free at AnnualCreditReport.com can keep you abreast of your personal credit situation and help you spot Identity Theft.

3. Paying Bills: Very simple, your utilities need to be paid on time just like your credit card bills. Sure, you can let your light or water bill float for a couple of months and paying them 30 or 60 days late won’t count against you. As a matter of fact, you have 89 days to make your payment and have your account reinstated. However, if you wait to that 90^th day, you are now delinquent. Your water, light, or phone bill amount will now be placed in collection and exist as a negative item on your credit report for seven years whether you pay it or not. (Paid collections remain on our credit reports for the balance of the seven years after payment as a reminder to others that you were irresponsible once or twice or repeatedly depending on how many collections one has.)

4. Social Security: Social Security will exist in a very different format for these Gen Y students. They need to be self dependent and plan for their retirement early. No one will do it for them. In my workshops, I often ask who wants to retire with a million dollars in their retirement account. Of course, multiple hands go up. The point: When your employer offers you a 401k, pension, or any other type of “qualified” retirement plan, simply say “YES!” Start contributing to the retirement account. Put in at least 6%. You won’t miss it, you will save a few dollars on your taxes, and you will be pleasantly surprised when you get your retirement account statements and see it growing. This is especially gratifying if your employer matches your contribution or provides pension plan contributions from profit sharing.

5. Social Media: Restrict your personal information that is shared over the internet. Too many young adults share too much as it is and do not take proper advantage of privacy controls in websites like Facebook. If you don’t want your next potential employer to see your spring break photos of drunken debauchery in Palm Springs or Palm Beach, tighten up your privacy controls, Dude!

I think following these five ideas can save you from living in your Mom’s basement forever.

In my work with recent college students and grads, one of their greatest fears is that they will never own a house. Recent grads are facing a difficult time in some areas with the homes they may want to buy being priced out of site for them due to the current demand. Don’t worry. The average age of a first time homebuyer is 30 years old. Most people I know did not buy a home until they were well into their 30’s. There is no rush to buy a home despite the increases in overall prices. You have time to save your money. You have time to evaluate where you want to live and whether a house or condo would be best for you. You have time to gauge the economy and pick your best time to buy.

I have noticed it and it has been expressed to me by some students, the financial markets are too volatile. Why would they want to put their money into the stock market? They fear the return of the great recession. When I was 21 in 1981 there was a recession on and it was pretty serious. Interest prime rates had risen over 20%. No one could get a decent interest rate to buy a home. Unemployment was 8% and rose to 10% over the next two years. In the early 80’s, we had many of the same fears today’s grads suffer.

What happened? Eventually, markets went into recovery. Unemployment was under 6% by 1988. The stock market doubled, tripled, and eventually grew to 14 times its size by the present day. This didn’t happen in a nice even fashion. It took a market crash in 1988 (22% drop in the Dow in just one day!) and three recessions in 1992, 2000, and 2008 to get here. Financial markets are cyclic and, historically, have always recovered and surpassed previous high water marks. 

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Credit Inquiries: How do they effect your credit?

How does this application affect my score?

Inquiries are not a big part of our credit scores. They only comprise 10% of the overall credit calculation of our FICO score. But they do play an important role in how financial institutions grant credit. There are different kinds of inquiries; some affect our credit score and some inquiries don’t.

• Promotional Inquiries A promotional inquiry is an inquiry made by a lender on an entire neighborhood or larger region. ABC Credit Union may want to advertise their new low rate credit card so they will contact a credit bureau and ask for all the people in a certain Zip Code with a credit score of 600 or better. Then, the bureau does a mass inquiry to create a mailing list. These sorts of inquiries do not affect your credit. They appear on your report for two years, but do not affect your score at all. 

• Employment Inquiries Checking your credit history for employment purposes will not affect your credit scores. According to Experian Credit Bureau, when your credit report is requested for employment purposes it generates an inquiry. However, that inquiry is shown only to you on your personal credit report. It is not shared with lenders or other businesses and is not included in credit score calculations.

• Credit Inquiries for Borrowing (HARD Inquiries) These inquiries will effect your credit score as they are known as a “Hard Hit” inquiry; meaning they were initiated by you when you signed an application applying for a rental property, a credit card or some other type of financial lending product. Whenever we apply for credit; whether it is a personal loan, car loan, home loan, line of credit, credit card, or a business loan, you will have a “hard hit” credit inquiry on your report. The inquiry will appear on your credit report for two years but will affect your credit score for only one year.

Have you ever been to a store where they offer you a 10-15% discount on your purchase for completing a credit application? I bet you have. Recently, I was in Kohl’s Department Store and Target and was asked by clerks in both stores if I was interested in completing their credit app for a discount on my purchase. All around me there were people filling out their applications for the store card to get their discount. I have heard people say they do it all the time to get the discount. As mistakes are known in the internet world, that is a FAIL.

Multiple inquires create multiple hits on your credit report and score. It is not a good idea to complete a credit application for a purchase discount. It takes points from your score and may cause you to have your credit application for something you really need, like a home or a car, be declined as your credit score was low due to multiple inquiries.

Remember, a hard hit inquiry can take 10 or more points off your credit score. It all depends on the strength of your credit report and score.

Interested in learning more about credit? Attend our Credit Myths and Facts Workshop next Wednesday at our Monta Loma Financial Center in Mountain View.


 

Wednesday, April 25 at 6:00 p.m.
Credit Myths, Facts and Credit Repair