Improving Your Credit as a Young Adult

We are all assigned numbers; social security numbers, personal identification numbers, checking account numbers - lots of important numbers to remember and protect. One of the most important numbers is your credit score, the number that tells lenders how capable you are to repay a loan. Your credit score can determine the financial options that are available to you in the future.

What is a Credit Score?

Credit scores range from 300 to 850. The higher your credit score, the more trustworthy you appear to lenders, and the more likely you are to be approved for a loan. There are a few different ways you can check on your credit score. The most popular and reliable is the FICO (or Fair Isaac Corporation) scoring system. To determine your score, a few basic categories are taken into account: payment history, accounts owed, length of credit history, new credit, and credit mix. Each of these categories might hold different weight for different people.

Payment History

Your payment history generally makes up 35% of your credit score—the largest and most influential component of your credit score. The best thing you can do to keep or build good credit is to pay your bills on time. This shows lenders that you are reliable.

Accounts Owed

This section refers to the amount of money you owe and represents around 30% of your credit score. College student reading this are probably thinking “30%? Oh, no! I knew studying abroad was a bad idea…” However, it’s not as simple as you might think; having a lot of debt doesn’t always equal low credit scores. For example, if one person owes $5,000 on multiple lines of credit and has all their credit cards maxed out, they will have a lower score than someone who owes $50,000 but has not reached their limit or has other available lines of credit.  

Length of Credit History

At about 15% of your credit score, the length of your credit history can be very important. FICO scores will measure how long your oldest (and newest) account has been open and the overall average of all your accounts. Having a longer credit history is important, but if you have good scores in other categories, even a short credit history can result in a good credit score.

Credit Mix

The variety of accounts that make up your credit is known as a credit mix. This makes up about 10% of your credit score. Having a good credit mix means having many different lines of credit, such as retail accounts, credit cards, or installment loans (like mortgages, student loans, or car loans).

New Credit

New Credit is the amount of recently opened accounts and makes up the last 10% of your credit score. This means if you have recently taken out a mortgage or a pack of student loans, your credit score may be (perhaps temporarily) lower, especially if the loans were taken over a short period of time.

So, What Does This Mean for Young Adults?

Young adults - especially recent grads - tend to think that they are more financially stuck than they really are. The one factor they dwell on is debt. Actually, having debt is not as crippling as you might think. As long as you can manage your payments, debt will not necessarily ruin your credit report.

Students also tend to think that paying off their loans quickly will improve their credit score. Actually, it can have the opposite effect. Lenders make money off of interest, so sticking to your payment plan will often help your score more than getting rid of your debt fast. Missing a payment, on the other hand, will definitely hurt your credit score. And defaulting on a student loan can be downright crippling. If you’re having issues repaying your loan, talk to your lender before it gets out of hand.

Lastly, having a good credit mix is often lost on young adults. Even if you are not ready to take out a mortgage on a home, taking out a variety of credit lines is important. One such example can be taking out a car loan.

At First Choice Credit Union, we have flexible young adult car loan options. We accept loans for older models, offer various loan amounts and terms, and are less stringent on income and employment options. If you are looking for a good first step in improving your credit mix, this could be a perfect option for you. Apply online, or contact First Choice Credit Union for more information.  

Get a Head Start on Teaching Your Kids to Save

As a parent, you teach your child many things; how to behave in public, how to talk to others and the importance of being polite. You pass down certain personal traits to your kids as well - maybe a love for sports or a love for animals. As a parent, your number one goal is to teach your child to become a functional adult. One important aspect that can get overlooked is teaching kids the importance of saving money. If you haven’t started yet, fear not. As April is National Youth Saving Month, we thought we would share some tips on teaching your kids to save.

Understand the Value

The sooner a child can understand the value of money the quicker they’ll understand why they should save it. One way to teach this is to have them save up for a new game or toy they have had their eye on. They’ll learn to work toward their goals, how to use money, and that it takes time to get what you want.

Create a Game

Another way to teach kids to save (which is especially helpful with younger kids) is to make it into a game. Create a reward system for every time you child puts a certain amount into savings. For example, if your child gets a weekly allowance of $10, have different rewards if they decided to save $2, $4 or $6. These rewards can be simple such as your child gets to pick out dinner, or gets to choose the next family outing.

Check out our Starfish Savings Program

At First Choice Credit Union, we offer a program specifically designed to help teach kids the value of saving money. The Starfish Savers Club was created for kids 12 years and younger to learn how to save while rewarding good saving habits. Each Starfish Saver gets a coin bank to make their deposits, and with every deposit the child makes, they get a gift from our treasure chest.

Image by digital internet via Flickr

Teaching your kids the value of saving is very important. Many parents wait too long before teaching their kids to save their money. Start teaching your kids while they are young so that they develop good savings habits now and even better habits in future!

Budgeting for Spring Break

As the old saying goes, spring is just around the corner, and that also means Spring Break! Every college student dreams of going on some elaborate trip with their friends and having the time of their lives. Unfortunately, many students wake up from that dream and remember that they are college students who can’t quite afford an elaborate trip. Maybe you’re not planning on heading out of the country this March, but here are a few tips to help you save for your trip:

Set Your Budget

To a college student, the word “budget” brings visions of ramen noodles and bus passes, but if you are going to save for your trip, you need to set a budget. Start by getting a rough figure of how much your trip will cost. Then, you can begin to build a savings plan. There are many apps that you can download to help you track your savings. (First Choice Credit Union, for example,  offers online banking and apps for Android and iPhone users.) Mobile banking is a great way to  keep track of your spending and savings so you can reach your goal.

Purge Your Closet

If you need some more cash, try selling some old textbooks or go through your closet and sell your unused clothes for cash. Also, keep your eye out for any easy job offers. Some colleges may request help running large events on campus or in the mail room. These jobs are typically only for a few weeks, but are great if you are only looking to get a little extra income. You can even recycle cans and bottles for extra money!

Tighten Your Belt

This one may seem obvious, but stop spending your money on unnecessary things. Weekends are the worst time for college students - spending can get out of hand. Dine out less, wait to see the latest movies, don’t buy clothing items you really don’t need - you know the drill. If this trip is important to you, look into free ways to spend your weekend. See what’s going on around campus or try to get ahead on school work. If you simply must go out, don’t spend money. It may seem tough at first, but trust us, it will pay off in the long run!

Flash Your Student ID

One last way to try and save some money is by using your student ID. Many companies offer a student discount which can help you save just a bit more towards your trip - just ask!

Even if you don’t have the money right away, just yet get creative about saving and you’ll be on your dream trip in no time. If you have any questions about other ways to save or setting up a savings plan, give us a call at (561) 641-0100 or check out our website.