College Students: Work on your credit history.

I received an email from a little while back that came from Mike at
ECreditDirectory.com . It contained some pretty good information to pass along.

The Importance of Building Credit History

For many people, credit is a Catch-22: They can't get approved for
credit because they don't have a credit history, but they can't build a
credit history without first being approved for credit. Luckily for them,
college students don't tend to have this problem. Credit card companies
view them as low risk, at least compared to other young people with no
credit, and so they're willing to give them a first chance. As a new
cardholder, it's vitally important that you make good use of this first
chance.

When you have a credit card, the issuing company reports information to
each of the three major credit bureaus - Experian, Equifax, and
Transunion. This information includes the amount of credit you've been
approved for, how much of that credit you are currently using, and most
importantly, your payment history. All payments - both late and timely -
show up on your credit report, and even one late payment can hurt you
rather badly when you lack a solid credit history. This is why you should
always, no matter what, pay at least the minimum due on each of your
credit card bills.
Always Try To Pay More Than The Minimum Due

While it's important to always pay at least the minimum due, you should
never only pay this amount unless you are completely unable to pay
more. In fact, it may not be a bad idea to pay the minimum immediately
upon receiving your bill and then pay more later in the month when you
have more money.

If you pay less than the total amount due, you will be charged interest
on your next bill. Even though the credit card company holds you in
higher esteem than one of your high school peers who didn't go on to
college, they still regard you as a rather risky proposition - which means
you'll probably be paying a very high interest rate. If you only pay
the minimum due on a card with a high interest rate, it could take you
several years to pay off even a modest amount of debt.

Take Advantage of Your Opportunities - But Use Your Credit Wisely

Believe it or not, it may be easier to get approved for credit while
you're in college then after you get out - particularly if you don't
start a professional job right away (or at all). The high interest rates
you're asked to pay are just part of being a newcomer to the world of
adult finance. But then again, if you always pay your credit card bills in
full, interest rates will be irrelevant.

Regardless of all the cautionary tales, you should definitely open up
at least one credit card account while in college to begin building a
solid credit history. If you can show the credit card companies that
you're responsible, you'll soon be paying much lower interest rates, and
you'll be able to get that new car or house when the time is right. If
you ignore or abuse your credit opportunities in college, it could be one
of the worst mistakes of your life. You're an adult now - it's time to
stand up, take responsibility, and enjoy your share of the American
Dream. And it all begins with responsible use of credit!

The Federal Reserve and how interest rates are set.

You have probably heard about the Federal Reserve once or twice through your favorite news outlets. You may have also known that special members of the Federal Reserve hold meetings frequently to discuss interest rates and whether or not to raise or lower them. More information on monetary policy meetings here.

The Federal Reserve has a very profound effect on interest rates through changing what is known as the "discount rate. This is the rate in which money is disbursed to member banks in the form of loans. Member banks are required to keep reserves and sometimes need to borrow money to meet reserve requirements. These member banks also make loans to other banks, who in turn use that money to lend to corporations and individuals such as students. Major financial publications such as the Wall Street Journal, post the discount rate and other economic data in or around the front pages for investors to see. This data serves as a cluster of indications of the state of the economy and consistently reading these publications can give you tips on how to approach any investments and loans you may have. The one thing to take from all of this is: the higher the discount rate, the higher the cost of lending to you the borrower.

What Your Credit History Costs You

Have you ever considered how lenders determine if you are worthy for a loan, and what about all of this talk about credit scores, credit worthiness, and why should it matter? Well, to preface the explanation on why credit scores are important, let's use an example: Let's say you plan to apply for graduate school(If you are like me, you just want to make it through undergrad school). The school of your choice will have minimum requirements for you to meet. When they receive your application, letter, and other credentials, they will look to see if you meet the requirements and if you are a good fit for their school. The process is similar with lenders when they approve you for a loan, credit card, or whatever. They want to determine if you measure up to their criteria. These measurements will determine first if you get approved, but even more than that, what interest rate you pay and how much you can borrow.

Ok, why is your credit history important?

Financial institutions exist to make money, and they do this by charging interest and fees. In order to gain business, they offer different interest rates and fees to different people for a variety of reasons. These financial institutions consider your default risk(a measure to determine if you will pay your debt back), the cost of lending, and inflation(expectation of a rise in interest rates)in determining the interest rate you will pay. Only default risk is unique to you, and it is determined by your credit history. So the better your credit, the lower the interest rate you'll be offered.

As you can your credit history is vital in order for you to get the best rates on a loan. Your credit history shows what kind of default risk you have. To minimize your default risk, stay on time with your debt payments, lower any existing interest rates on current loans if possible, pay down your debt, and monitor your credit report as often as possible. If you are considering lowering your interest rates on a loan, you should consider loan consolidation, and if your credit history is less than perfect, you can get help through many credit repair specialists.

You should start now as it takes time to rebuild and build your credit history.

Debt Consolidation....... Some things to consider.

You have probably heard of loan consolidation at some point. I remember the first time I consolidated my debt. I actually went to the student financial counseling center on campus(which I recommend seeking out on your campus), and getting a lot of good information, particularly deadline dates to apply for consolidation. I didn't know a date existed, but it does. Let's go over some things about debt consolidation according to Consumer Action:

What is Debt Consolidation?

Debt consolidation may be an answer for some people that have credit problems. Debt consolidation involves borrowing enough money from one lender to pay off all your debts.


When you consolidate:

-You make only one payment each month, to the new lender.
-You will usually pay out less money each month.
-You usually pay more money in finance charges to consolidate debts.
-You make payments longer.

Before you decide to consolidate your debts, look at your other choices:

-Talk to your family members about the problem. See if you can lower expenses or raise income.
-Seek financial counseling (on campus, or elsewhere). You can go to a credit counseling service. They may know a solution you have not thought of.
-Call your creditors to see if you can work out some change in monthly payments that will ease the pressure. The creditors may be willing to adjust payments.

*If you do decide to consolidate your debts, shop around. There are different places you can go, such as banks, credit unions, and finance companies.

Before you choose whom you will get the loan from, find out the following information from each place:

-The charge for the service.
-The annual percentage rate (APR).
-The amount of your monthly payments.
-How long you must make payments.
-What the total amount is that you will pay.
-What happens if you miss a payment.
-What happens if you are late making a payment.

Potential Problems:

Making only one payment a month may make you think you are better off than you actually are. You may be tempted to buy something else on credit, and before you know it you could have an even worse problem: too many bills with too little income.

Finally..

Be sure to seek out your on campus financial counseling center if one exists, or a counselor at the financial aid office to see what your options are. Generally your original lender who issued your loans will most likely be the one to consolidate your loans because they don't want you taking your borrowed money elsewhere. Keep in mind that now is a good time to consoldiate while interests are low.

Creditor Harassment

Not many people know this but if a creditor calls you and uses aggressive tactics with you and threatens you, it is against the law. They are liable under the Fair Debt Collection Practices Act (FDCPA). It's a federal law that protects consumers from harassment or threats made by creditors and prohibits creditors from making false statements.

The Federal Trade Commission(FTC) is a place to go to file complaints against harassing creditors.Click here to access the FTC website and learn more about debt collection and the complaint process.




Get Smart Debt Solutions Now!

Credit Card Survey

Check this survey out conducted by Consumer Action, it contains a wealth of information:

Credit Card Survey 2007

0% APR?

One tidbit of information that you should know, is the the reality of a "0% APR". What does it mean? You probably have seen 0% APR displayed on solicitations in your regular mail as well as in your email inbox. Your APR is simply the interest you pay on a loan or credit card. You have to pay attention to credit cards because of the way your interest payments are calculated. The 0% APR is the promotional rate. Your new APR will become active as soon as the promotional period has ended. The 0% APR is not necessarily a bad thing and you can make it work for you if you don't let your spending get out of hand and if you make your payments on time. Unlike traditional loans, instead of interest being compounded monthly and having those payments eventually go to the principal amount, credit card payments are computed on an average daily balance and compounded daily. An explanation of how your payment is calculated is outlined in a disclosure given to you by the credit card company. Each credit card issuer's terms are different. "0% APR" could mean you pay no interest for 6 or 12 months, however you are still paying minimum payments per month. If you fail to make these payments on time then the contract rate will be applied and can be as high as 29.99%.

Also, 0% APR promotionals generally apply to purchases you make or balance transfers from another credit card or loan balance. Be sure to understand which one it applies to.

Also check out the Federal Reserve website as well. It has published some really good information on "Choosing a credit card".



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