Future Rich: Credit 101

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So you’re in your twenties. You’re budgeting and starting to invest. You’re starting off on a strong financial foot. But you know that you should be concerned about credit. Your credit score number shows lenders you’re responsible and encourages them to give you money for the things you want like a house or car. Ready to rumble through the basics? Let’s get started.

What is credit?

Credit is a line of money given to you by an outside party to use as your own and pay back. It can come in the form of a credit card, loan or mortgage.

Your credit score is a number which banks and credit providing institutions use to see how good you are at working credit. That is obtaining it, using it, and paying it back on time.

Think of credit as a challenge. Use it, pay it. Do that enough times with enough companies and score points to improve your score. Simple, right?

What does a credit score look like?

Credit scores are numbers between 300 and 850.

300-590: needs improvement

590-640: getting there

640-720: good job!

720-850: killing the game!

How do I find out what score I have?

Many credit card companies including Wells Fargo and Discover provide scores to consumers now. See if your card provider or bank does. If not, use a free service like Credit Karma to check out your score. But BEWARE: do not frequently check your score! You shouldn’t check more than once per year. The number of inquiries on your score can negatively impact your overall number.

For this reason, it’s a good idea to get soft checks every couple months, especially if you’re looking to make a big purchase like a house where your score will come into play. A soft check does not go against your yearly inquiry number and is not 100% accurate but will tell you what range you’re in with little error.

My favorite place to get a soft check is on my can’t-live-without budgeting app, Mint (which you already know). Mint provides a free soft check every 3 months, right in the app! Along with tips to improve your score.

So I checked my score and frankly I’m afraid… How can I make my score better?

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Fear not, mere millennial. We can fix up that sad little score and get you the house (and interest rate) of your dreams yet! There are 5 major categories you can earn points in when it comes to credit. Some categories are worth more than others so I’ll rank them in order of importance:

  1. Payment history: Do you pay your bills on time? Your goal should be to always pay at or above the minimum payment on time. Late? Call your card company. They may forgive you if you don’t miss often.
  2. Credit usage: How much of your total credit do you currently owe on? Try to keep your total amount owed at less than 30% of your total limits. Under 20% is even better.
  3. Age of credit: How long have you been building credit for? It’s important to not only show that you’re good with your credit but that you have been over a significant period of time. For this reason, many banks encourage 18 years olds entering college to apply for a student card. It takes 6 years to build primo credit so start out small but start out early. And don’t close old accounts just because you pay them off!
  4. Credit inquiries: THIS is why we don’t frequently check our scores. You also are marked with an inquiry when you apply for a new line of credit.
  5. Number and types of accounts: On average, you want to maintain a few lines of credit of different types. Mix it up with credit cards and loans. Ideally, you want to have 13 lines of credit over a lifetime. Don’t go rushing to open every new store card available though. Every car and home you purchase over your lifetime will count toward that number so be conservative and stick with no more than 5 cards.

I mean is a little lower score really gonna make that big a difference?

Let me give you a “for instance” provided by my friends at Investopedia.

Say you decide you’re going to buy a home of your own. Congratulations!

You go to the bank to be approved for a mortgage and have a score of 730. You receive a 3.8% interest rate loan on your $300,000 abode and pay $1398 a month.

Your friend Mike goes to the bank too but Mike’s score is 610. He is approved too! (Woohoo neighbors!) But Mike gets an interest rate of 5.39% on the same loan. His payment? Nearly $300 more than yours every month!

Over the life of your loan, Mike will pay over $100,000 more than you. Let that set in for a second. One hundred thousand dollars. I’d say that’s a pretty big deal.

Are other people my age’s scores way better than mine?

On average, this is what scores look like by age:

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In that case, the average person wouldn’t be able to afford a home with a decent interest rate until their kids were buying their own homes. Shoot to be better than the average, but use these numbers to assure yourself you are just starting out (and so is everyone else).

Ready for more? Get a look at that credit score and start making moves.

And check out these other articles for more!

How I Got an Excellent Score by 22

Credit Karma Tips for Young People

Life Lessons in Credit (with awesome infographics)

Building Credit from the Ground Up

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Meal Planning 101: Getting Started

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Week of 1/25/16

Menu

Breakfast: PB Chocolate Banana Shake

Lunch: Meatless Mex Mashup

Dinner: Mediterranean Chicken

Shopping List

  • protein powder (preferably chocolate peanut butter)
  • 4 large bananas
  • 4 cups skim/almond milk
  • 14 fajita-size flour tortillas
  • 5 large potatoes
  • 1 can black beans
  • 1 small container any kind hummus (roasted red pepper is my favorite)
  • 3 avocados
  • 2 pounds boneless skinless chicken breast
  • 2 bags frozen steamer vegetables (medley or broccoli work best)
  • 1 bag baby carrots
  • 1 container strawberries
  • 1 container blueberries

You should have in your pantry:

  • healthy snacks such as kashi bars, low-sodium turkey jerky, babybell cheeses
  • italian seasoning mix or herbs
  • extra virgin olive oil
  • containers

Recipes

PB Chocolate Banana Shake

Fill your blender with half a banana, one scoop protein powder, 1/2 c milk, 1/2 water, 3-5 ice cubes. Blend until smooth.

Mediterranean Chicken & Potatoes

Preheat oven to 400 degrees F. Clean boneless breasts. Beat to make tender and of even thickness. Arrange on a cookie sheet covered in foil. Coat in 1 tbsp of olive oil and italian seasoning on both sides. Bake for 15 minutes. Turn over and bake for 15 more minutes. Chicken is done when it is 160 degrees inside on food thermometer.

Scrub potato skins clean, then pierce with fork throughout. Place in microwave for 10-13 minutes. You may have to do this in two batches depending on the size of your microwave. Potatoes are done when they can easily be scooped from their skin.

Microwave frozen vegetables.

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Meatless Mex Mashup

Black Bean Potato: Arrange half the flour tortillas flat. Spread a thin layer of cooked potato innards onto each tortilla. (This should use about 1.5 potatoes.) Rinse black beans and place 1-2 tbsp on top of potatoes.

Avocado Hummus: Pit and scoop out avocados. On the other half of the tortillas, spread a thin layer of avocado. On top of that, put 1 heaping tsp of hummus.

Arrange

Each dinner container should include 4oz chicken, half potato, vegetables.

Each lunch container should include one of each type of tortilla and a cup of fruits and vegetables.

 

 

Budgeting 101: Mint

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Being a full-time college student and part-time employee, I have a delicate balance in my hands. Free time is hard to come by but I don’t mind because I know that my balancing act is helping to cut down on college debt. Still, it’s important to make sure there is a light at the end of the tunnel besides just a lack of debt. For me, that light is travel.

Going to new places, meeting interesting people, and immersing myself in other cultures is what I live for. To get there, I budget my funds so I make sure there is enough to live the life I have planned in my head. (The one where I gently throw my hair over my shoulder when I meet that guy who backpacked all over Europe as I prepare him for an audio-representation of my travels.)

I don’t have the time or desire to sit down with a pen and paper or an Excel spreadsheet or to hold onto receipts like my grandmother. Instead, I do what any good millennial would: I use an app.

Mint is a completely free app by Intuit, the people who make TurboTax (which I am also a dedicated fan of). By completely free I mean no fees upfront, no trial period, no popups. Really free for your enjoyment and use. How often does that happen?

You can use the app from your phone or your computer. Once inside, you can connect all of your accounts like credit cards from your bank or stores, checking accounts and debit cards, savings accounts, IRAs, you name it. The app will track each purchase you make and categorize it based on your budget. No need for receipts- the power of online banking has you covered.

The first month you use Mint, you can set goals for yourself or use the program’s estimated budgeting goals. After that, you can stick to where you’re comfortable or be like me and treat personal spending as a cut-throat game of savings. I see how I can get those budgets down, not because I need to but because once you see the way spending adds up, it seems downright necessary. It doesn’t matter how many times your mom told you that packing your lunch is a lot cheaper than eating at Chipotle four times a week. Until you see your burritos lined up in dollar signs, it’s hard to validate the switch to PB&J. (More on how to not have to eat PB&J but still save money to come.)

The app also offers helpful tips and tricks based on your spending. For example, if you have a low interest savings account, Mint will show you alternatives with the same monthly fees that offer better rates. You can even get your Equifax credit score for free through the app with helpful tips on how to improve your score for next time.

Make sure once you get down the budgeting aspect of Mint you set goals for yourself in the computer-only “goals” tab. This is a great feature for my fellow (or future) world travelers who want a visual representation of how long it will take to get where they’re going.

Try it out and tell me what you think! Know an alternative? Comment below!

-BGB

Photo courtesy of Mint.com

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