The Smart Money
SBCC Presents a Student's Guide to Financial Fitness
It’s not enough just to earn a paycheck. Building credit and wealth is about thinking long-term, making careful financial choices in the present, and never losing sight of the big picture.
Essential life goals, such as high credit scores, home loan approvals, and even jobs can depend on your financial track record. Once you’ve learned the finer points of credit and borrowing, it’s easy to avoid the most common traps.
Money matters can be complicated, but we've got your back! Follow the helpful links below for more information on key financial literacy topics!
Credit Cards: Knowing the Score
Credit cards are the most common form of borrowing for young adults. In essence, a credit card is a loan granted by a bank or credit union, usually to cover small, short-term, and/or emergency expenses.
As with a typical home or bank loan, the amount borrowed will need to be paid back, with interest, at a rate determined by the size and length of the loan.
Talk the Talk
Credit-related terms you need to know!
- APR: The Annual Percentage Rate (APR) is the rate of interest you pay on your loan each year. A fixed APR maintains the same percentage throughout the life of the loan, while a variable APR can be adjusted up and down, based on a variety of factors.
- Secured vs. Unsecured: Most bank-issued credit cards are “unsecured,” meaning that the credit line is extended without need for collateral on the part of the borrower. Secured cards, often used for rebuilding damaged credit, require a cash deposit to guarantee the line of credit.
- Credit Score: A number, based on your credit report by one of three credit agencies, representing your recent credit health.
- Balance: The total amount owed on the card, including un-repaid principal and any interest payments.
- Minimum Payment: The smallest acceptable credit card payment necessary to remain in good standing with a lender.
- Credit Line: The maximum amount that the lender is willing to lend.
- Credit Check: An audit of your recent credit history, requested by a potential lender. A “soft” inquiry does not affect your credit score, and may be performed without your consent. A “hard” inquiry is authorized specifically by the potential borrower, and may affect credit scores negatively.
- Revolving Debt: Phenomenon in which a borrower is unable to make progress toward principal repayment debts, due to the terminal burden of outstanding interest payments.
Your Credit Score
Credit scores are determined by information appearing on credit reports from the three main bureaus – Equifax, Experian, and TransUnion. Every time you initiate a borrowing transaction, a new record is added to your report.
The most commonly referenced credit score is your FICO score, but multiple credit-evaluating models exist, meaning you will have multiple Credit Scores.
Regardless, a score above 700 is typically considered positive, whereas a score beneath 600 is considered averse.
What does my Score mean?
Top 3 Credit Do's and Don'ts
1 DO pay off your credit card balances.
The best way to avoid accruing interest is to bring your balance down to zero, whenever possible. Don't miss payments, and be sure to meet your credit card issuer’s “minimum payment” every month.
2 DO compare terms and shop around!
Not all credit accounts are created equal. Each card will have its own credit limit, interest rate, fees, penalties, and usage benefits. Do your research, and make sure you understand all fee and payment structures before committing to a new credit account.
3 DO identify and resolve negative items on your credit report.
In addition to making payments and keeping balances low, it is your responsibility to monitor your credit accounts for unexpected reports and errors. Attempt to resolve disputes directly with creditors before contacting credit bureaus.
1 DON'T max out your cards.
Spending near your maximum credit line hurts your credit score, while increasing revolving interest payments and occupying potentially vital emergency funds. Keep your balances low, and your head held high!
2 DON'T open unnecessary accounts.
Additional credit accounts come with added fees and obligations, not to mention temptation to overspend. Furthermore, any new inquiry has the potential to damage your credit score.
3 DON'T fall victim to credit repair scams.
Keep your identity safe, including all email passwords, banking and business information, and social media logins. Don’t click on suspicious links, and be wary of for-profit businesses making dubious promises about credit repair. Most credit issues can be resolved for free, with the help of public resources. Report suspicious credit repair or debt relief vendors here.
Heads Up! You are legally entitled to a free copy of your credit report every 12 months from each major credit bureau. Access yours here.
Loans and Borrowing
Whether it’s a higher education, a used car, or a new house, most adults will encounter an expense requiring borrowed funds at some point in their lives. Like credit cards, loans come in many shapes and sizes, with wide variety in cost, terms, and duration. Don’t be afraid to shop around for the best possible loan terms, and never borrow more than necessary. The U.S. Department of Education’s Financial Literacy Guide features complete information on borrowing topics, including mortgages, student debt, loan repayment, and more!
- Know the Score: Your credit score is instrumental in determining your eligibility for loans.
- Eyes on APR: The Annual Percentage Rate (APR) determines the cost of the money, per year of the loan. The lower, the better!
- Ask Questions: Don’t be afraid to contact your loan provider for the latest information on your account.
Don't Get Discouraged by Debt
There are a variety of free resources to help you avoid and overcome financial crises. Visit the Federal Trade Commission’s “Coping with Debt” Website for advice on budgeting, debt relief, debt consolidation, and more!