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A Crash Course on Credit Cards

Posted on by Cheryl Rauh

What is a credit card?

Photo of a stack of credit cards.

A credit card represents a line of credit (money available for borrowing) that allows the card holder to borrow funds quickly. Think of swiping your credit card like taking out a mini loan for whatever you are buying. Similar to loans, you are expected to pay back the amount you borrow. This amount normally comes due at the end of the month. If you miss your monthly payment or carry a balance forward into the next month (owe money on the card), the company you are borrowing from will charge you the predetermined interest rate. The average interest rate on credit cards currently is 21.68%. When you are issued your credit card you will notice that there is a credit limit, this is the maximum amount you can borrow on your card. Overtime, this limit can be increased if you are managing your card well.

Differences between Credit Cards and Debit Cards

Credit Cards
 Debit Cards
  • Connected to line of credit
  • Monthly bill for purchases
  • Interest builds on unpaid balances
  • Additional fees
  • Builds credit history
  • Fraud protection (liable up to $50)
  • Connected directly to your bank account
  • No monthly bills for purchases
  • Overdraft fees if money runs out
  • Requires pin number
  • Fraud: liable up to 50$ if reported within 2 days; if 2-60 days liable up to $500

Managing your credit card:

Credit cards can be a big responsibility due to the potential for them to be mismanaged. If you are not careful you can rack up a lot of debt and fees that you might not be able to pay off. Additionally, if you miss payments or misuse your card it can hurt your credit score. Your credit score is like your financial GPA and is calculated based on five different things.

Credit Score Factors Graph: 35% Payment History, 30% Amounts Owed, 15% Length of History, 10% Types of Credit, 10% New Credit

  1. Payment History: 35% of your credit score is based on if you make your payments or not. Be careful not to miss payments!
  2. Amounts Owed: 30% of your credit score is determined on your usage of the credit made available to you.
  3. Length of History: 15% is determined by how long you have had credit; the longer the better.
  4. Types of Credit: 10% is effected by how many different types of credit you have. It is actually good to have several types of credit (i.e. a mortgage, student loans, and a credit card).
  5. New Credit: 10% is based on how often you apply for credit.

Finally, to check your credit report, you can go to this website for a free credit report three times a year (due to the pandemic, you are currently able to check your report weekly): Annualcreditreport.com. Your credit report is like your financial GPA, it includes information about your credit accounts, account payment history, and credit limits. It is important to check your report frequently to catch identity theft. Any credit usage under your name and social security number will appear on the report. If there is activity that you know isn’t you then sound the alarm! (Identity Theft Information). Your report will also show your credit score which is like your credit worthiness. Credit scores can range from 850 to 300. The higher your score the better with 700 or higher considered excellent. Having a good credit score is important because if you have a low credit score you could pay higher interest, have a lower credit limit, and it can even impact your employment or renting opportunities.

Three Helpful Tips:

To maximize your credit card for your benefit, I recommend keeping these tips in mind:

  1. Pay off your credit card every month so that there is a zero balance at the end of every month.
  2. Only use 30% of your credit limit. For example, if your credit limit is $2,000 you should keep spending to a maximum of $2,000 x .30 = $600. This means that you should try to keep your credit card spending under $600 for a month.
  3. Shopping and applying for credit cards can decrease your credit. Make sure you only apply for one credit card at a time!

Helpful Links:

If you have any questions about credit cards or want to learn more, please feel free to schedule an appointment with us at Powercat Financial. All appointments can be made on our website: Powercat Financial.

Abram Mugler
Peer Counselor II
Powercat Financial
www.k-state.edu/powercatfinancial 

Keeping Current with Credit

Posted on by ekoochel

With the credit card market being as large as it is, changes are happening all around us. Credit companies are making changes to stay competitive in the market which could end up being beneficial for customers. Simply contacting your credit card company could result in more savings in your pocket than you would think. A survey done by Creditcards.com found that of 952 credit card holders, 8 out of 10 people who inquired or made requests from their credit card company were successful. Let’s examine this survey closer and take a look at several ways simply reaching out to your credit company could be beneficial for you.

Waived Fees

Are you facing high annual fees on your credit cards? 82% of people in the survey done by Creditcards.com had their fees waived by simply reaching out and asking. The reason for this is due to the high competition amongst credit companies and their need to keep customers happy as to not lose them to the competitors. Of course, this is not the case for all credit companies and depend on each individual situation, but it can’t hurt to try especially if you have strong credit and a solid history of making on-time payments with your credit card.

Lower Interest Rates

Are you receiving high interest rates on your credit cards? Nearly 70% of those who inquired about lower interest rates were successful. Lower interest rates mean less money coming out of your pocket on outstanding payments. The study reports that only 19% of people requested lower interest rates, however, 13% of those people were successful (69%). Similar to the waivers on annual fees, this is contingent upon each individual situation.

Higher Credit Limits

Are you wanting a higher limit on your credit card? 89% of people in the survey reported receiving a higher credit limit after contacting their credit company. Why isn’t everyone doing it? The study reports that only 28% of people requested a higher credit limit but of those 28%, 25% were successful (89%).

As you can see, credit card companies are a lot more flexible than one would think. It seems so simple yet still not many people ages 18 to 26 have ever reached out to their credit card company (almost 7 out of every 10 millennials reported never having done so). Next time you believe your annual interest rate is too high, want to negotiate a higher credit limit, or feel like a fee isn’t justified, don’t let it go without reaching out to your credit card company first! You never know what could happen by asking.

Schedule an appointment with Powercat Financial today to learn all you can about credit, budgeting, student loans, and more!

Sydney Johnson – Peer Counselor I

Reference: http://www.creditcards.com/credit-card-news/late-fee-waiver-poll.php

Let’s Talk About Credit

Posted on by ekoochel

Image result for credit cards

With the semester starting to come to a close and the holiday season right around the corner you may be seeing an increase in credit card advertising. These advertisements may be coming to you almost every week by mail, or maybe you’ve seen one or two different Samuel L Jackson commercials telling you to sign up for his credit card.  There are a lot of great long term and short term benefits from using credit, but it’s important to realize the negative costs from using credit as well.  Before using credit, make sure these advantages outweigh the disadvantages.

Advantages of Credit

Purchase Power and Ease of Purchase: Credit cards are great to have because you don’t have to carry around as much cash.  This can reduce the ease of theft.  In addition, some credit card companies offer insurance on large purchases.

Building a Credit Line– Building credit is not only important when applying for more credit cards, it also impacts the ease of obtaining loans, rental applications, and even some jobs. Having a credit card and using it wisely (making payments on time) will help you build a good credit history.

Emergencies- While you should avoid spending outside your budget sometimes emergencies (such as your car breaking down or flood or fire) happen. Having a credit card allows you to make large purchases you may not have the immediate funds for.

Disadvantages of Credit

Blowing your Budget– Credit card companies encourage users to spend money they don’t have.  Majority of credit cards don’t make you pay off your entire balance each month, so if you only have $200 credit card companies may let you spend $500. While it seems great at the time and may seem like free money, that remaining balance of $300 accrues high interest.

High Interest Rates and Increased Debt- This is how credit card companies make their money and this is how most people in the United States get into debt (and even bankruptcy.) “Most credit cards charge you up to 10 times that amount of interest on balances. This means that if you have $100 balance that you don’t pay off, you will be charged 20-25% interest on that $100. This means that you owe almost $30 interest (plus the original $100) at the end of the year. “(Mountain State: Center for Independent Living)

Brett Zapletal – Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc

Know What Goes Into Your Credit Score

Posted on by ekoochel

If you are one that pays your bills on time, you deserve some sort of reward. That is exactly what your credit score is for. Basically, your score can tell lenders, credit card companies, landlords, and even employers how much of a credit risk you are to them.

So check out what your score means, what goes into making your score, and some tips on how to improve it!

What does my number mean?

The most used credit score is called your FICO score, which will normally range from 300-850.

750 or Higher: Having a score higher than 750 will put you in the top 20% of all U.S. consumers. This will lead to the lowest interest rate available when applying for loans.

700-749: If you have a score that falls in this category, you are still sitting at above average. Here, you should feel pretty confident when applying for a loan but should know that your score can still be improved.

640-699: With a score in this category, you will find yourself at the national average. This should tell you that you have plenty of room to grow and that you should look for new ways to establish credit.

580-639: Having a score in this category, you find yourself below the national average. With this score, you may or may not be accepted for loans or new credit, and if you are, the interest rate will be often fairly high.

579 or Lower: This is the lowest category. If your score sits below 579, you should definitely look for new ways to establish credit so that you are able to take out necessary loans when that time comes.

Debt can be scary, but it is extremely difficult to establish a solid credit score without taking on some amount of debt. Do not be credit invisible and begin to establish a credit history.

The five factors that go into making a credit score:

35% – Payment History: Your payment history carries the biggest wait of all five factors. It is vital that you make your monthly payments on time so that your score is positively affected. The way you handled money in the past is often the way you’ll handle it in the future.

30% – Amounts Owed: Lenders want to see that you don’t overuse your credit. Often times, you should want to keep 75% of your credit line available at all times to increase your score.

15% – Length of Credit History: Your credit score will take into account the oldest and newest accounts into consideration. The longer you have an account open, the better. Never cancel old accounts, even if you are no longer using them.

10% – Types of Credit: Your score considers a mix of types of credit. This will include credit cards, student loans, mortgages, etc. Make sure you don’t open too many or too few of one type of account.

10% – New Credit: Don’t open multiple new lines of credit in a small amount of time. This could lead to hard inquires that will negatively affect your credit score. Hard inquires occur when lenders or creditors request your credit report to approve you for a loan or credit card.

Credit cards are not the culprits; abuse of credit cards is!

Tips to help improve your credit score:

  • Check your free credit report quarterly to make sure there are no inaccuracies on your report. You can pull one free report from each of the credit bureaus per year (Equifax, Experian, Transunion)
  • Pay the bills on time to show that you are a responsible consumer
  • Reduce your debt. Each time you make payments on your debt, your credit score will improve
  • Put the shared utility bills in your name and make on time monthly payments
  • Shop for loans quickly. If lenders make multiple hard inquires within a two week period, they will only count as one inquiry.

Nolan Keim
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

 

Is It Time to Buy a Home?

Posted on by ekoochel

Is it time for me to buy a home? This is often a question many students about to graduate ask themselves. But, even if you’re not getting a diploma in May, there are still many factors to consider while preparing to buy or rent a home.

  • Interest Rates Are Low. In the past interest rates for mortgages have been close to 17%. But currently they are staying around 4-6%, which is an advantage for buyers.
  • Your credit can affect both your ability to get a mortgage and get approved for a lease. Just know that you can help yourself by building credit early on. A person with a higher credit score is more likely to receive a lower rate for their mortgage. For example:

Sales Price:                         $80,000
Down Payment (5%)      $4,000
Loan Amount:                   $76,000
4% Interest Rate              Monthly Payments = $362.84
6% Interest Rate              Monthly Payments = $455.66
That is a difference of $33.415.20 for a 30 year mortgage!

  • First Time Homebuyer’s Programs. There are various programs specifically designed for people who have never owned a home. Some of the benefits of these programs include: income-based grants (for qualified candidates), lower down payments, and help with loan approval. For more information on different programs visit http://www.kshousingcorp.org/homebuyer-assistance.aspx or schedule an appointment with Powercat Financial Counseling! (k-state.edu/pfc) Most of the time candidates are only eligible around college age, due to income restrictions.
  • Tax Deductions. If you itemize your taxes, mortgage interest and real estate taxes are deductible. So you’ll only get this benefit if you own a home.
  • When renting a home, you are often asked to sign a one year lease. Compared to buying, where you’ll typically have to be in the home for around 5 years to make your money back. In addition, you could be required to stay in a purchased home for up to 10 years if you opt for a specific first time homebuyer program!
  • If something in a rental home needs repaired, often times it is the landlord’s responsibility. They hold most of the liability. If you were to own a home and, for example, the furnace went out, that would be your responsibility to fix! This can lead to many unhidden costs- that you will not have to pay for if you rent. However, it is important to read the fine print of rental contracts to make sure your landlord does hold the liability. In addition, it could be to your advantage to get Renter’s Insurance to cover some issues your landlord won’t.
  • The housing market is ever changing. When you are paying rent you roughly know what your check to your landlord will be every month. Housing costs can quickly raise or fall. That is not to say your rent price will stay set in stone forever. But many times your monthly rent payment is locked in for a year when you sign a contract. Again, read the fine print to make sure this is the case.

Finally, there are many things to keep into consideration when deciding whether or not to buy a home. If you are uncertain of what to do, please schedule an appointment with Powercat Financial Counseling. We are always here to help. Listed are just a few of the “home buying” topics we can assist with:

  • Building credit – which you need to get approved for a loan. Better credit will help get you a lower interest rate and save money in the long run.
  • Budgeting – if you are renting or buying, you’ll need to set a budget that includes both your monthly house payment and other expenses. Some other expenses that it is important to keep in mind are: utilities, other debt payments (car, student loans, etc.), and necessities (food & clothing).
  • Personalization – come in to PFC to get more personalized home buying/renting help (or another financial topic!)

Visit www.ksu.edu/pfc to schedule your appointment today! It is never too early to start preparing for your first home purchase!

Resources:

Larry Curran, The Mortgage Company, http://www.tmckansas.com/home.html
Morgan Powell, SalinaHomes.com, http://www.salinahomes.com/

Hillary Williams

Peer Counselor I

Your New Year’s Money Resolution

Posted on by ekoochel

The New Year will be here in a few short weeks. With finals and the busy holiday season approaching, the New Year will be here before we know it. Around the end of the year we start to reflect, wondering if it went as planned. Maybe 2015 brought some unexpected financial hardships, maybe you ended up spending more than you earned, and maybe your student loan debt grew and grew this year. All of these situations can seem overwhelming. That is why PFC is here to help. Remember, you can always request an appointment at www.ksu.edu/pfc for personalized help. But below are a couple generalized tips to keeping your financial goals, or New Year’s Money Resolution for 2016 in line.

What if I am happy with my finances?

You may be thinking you don’t really need to change any part of your finances. But it is important to remember that the unexpected could always happen or things may not go exactly according to plan. So if you are one of the lucky students who have little, or no student loans, maybe you could work on building your credit. Or if you have an excess amount of money each month, instead of splurging on a trip to the mall, put it into an emergency savings account fund. The point is that even if your financial situation seems great, there is always something to work on to make it that much better.

What do I do if I need to start up a new and improved budget for the year?

Although it is difficult to change the things of the past, you can always plan for the future. 2016 may bring many obstacles and your financial stress could be at an all time high. If this is the case and you need to vamp up your budget, you can visit our website at www.ksu.edu/pfc/budgeting for some information on budgets. Don’t get discouraged if 2015 didn’t go as planned. Sometimes it can be hard to stick to a budget. Try to get a fresh start for 2016 and push yourself to stick to a realistic budget that allows you to spend money where you want. Remember, sometimes it doesn’t always seem this way, but budgets are your friend. They help you stick to a plan, which can be essential for you to reach your long-term financial goals.

How can I build my credit throughout the year?

Credit can be a scary thing. Just remember, that like a budget, credit is your friend. A good credit history can help you get a lower mortgage rate or a higher credit limit, as well as benefit you in other ways. If your goal for the New Year is to gain some good credit history but you don’t want to change much about your spending habits a credit card might be for you. There are other ways to establish credit like: auto loans, secured credit cards, and student loans. Visit our website, www.ksu.edu/pfc/credit to learn more about the various types of credit and find out which one may work for you. If you are making payments currently on your student loans this is helping to build your credit history. If you want to build existing credit make sure you are always paying your bills on time, and using your credit wisely- we recommend about 30% of your credit limit. Another important tip to remember is to check your credit report for discrepancies, if there is incorrect information on your credit report, clearing this up can dramatically increase your credit score immediately. You can check your credit report at www.annualcreditreport.com 3 times a year, one per credit bureau, for free.

Finally, no matter your financial situation, do not get discouraged. A year is a long time and a resolution is in fact that, a resolution, a goal, something you are aspiring towards. So if it doesn’t go as planned immediately, or if you have a couple hiccups throughout the year don’t give up! Just check in on yourself periodically, or have a friend or family member hold you accountable if need be. Good luck! And happy (almost) 2016!

Hillary Williams
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc