Building Credit History

Building Credit HistorySome day you will graduate. And you will have a fancy job. And you will want to buy a house. The bankers, see, they don’t care that you have a Ph.D. When you go ask them for hundreds of thousands of dollars in loan, what they want to know is how reliable you are and how safe their money will be in your hands.

That’s where having a good credit score comes in handy. (I remember reading that these days, even jobs, insurance rates etc are tied to the credit score. Since I don’t know enough about that yet, I will leave that topic for some other post.)

I cannot emphasize enough about how important it is to have a good credit score. So here’s an example.

On a 30 year mortgage of $200K, 0.5% increase in your interest rate can mean $23K extra paid in interest, a 1% increase in interest rate translates to $47K extra dollars in interest and 2% increase in interest rate equals a whopping $95K additional dollars paid by you. The bankers save their lowest interest rates for the best credit score. So, you see my point right?

Here are some rules for building a good credit history

  • Start Early. It is not clear what the exact formula is used for calculating your credit score, but the age of the account is a definite parameter. If you are not sure if you qualify for a credit card yet, start with a store card or a student card. The interest on these cards will likely be very high, but that should not matter to you because of the next rule
  • Never charge more than what you can pay off in full every month to your credit card. If you lack the discipline to follow this rule, then keep your credit card at home and don’t take it anywhere with you, EVER. Set one of your recurring bills (eg. utilities, cell phone bill etc) to get direct billed to your credit card, and when your utilities/phone bill comes in every month, instead of paying it, pay your credit card immediately (This can easily be done online for most cards these days). Apart from the initial set up, nothing else changes and you will be able to build good credit score without risking defaulting
  • Never use the full 100% credit limit even if you can pay it off in full. 100% card utilization will bring your credit score low. Try to keep the utilization below 50%. And certainly Never go over limit! . You need to be particularly careful if this is your first card and it came with a low credit limit to make sure you do not accidentally overcharge it
  • Never ever be late with your payments. This is where being able to pay the card online will come in very handy. Also, some credit cards allow you to choose your statement date. When I was a student, here is what I did. I contacted my credit card companies and requested my statement date to the end of the month so that the payment is due by the 15th of the next month. I set a monthly reminder for myself (through yahoo reminders) for the 1st, so I would pay both the rent and credit cards on the same day. That way, I would never be late.
  • Do not apply to a lot of cards Look on the Internet and find out which card is the best for students and apply only to one card that you have a good chance of getting accepted. Once your receive your card, wait for at least a year or so before applying for another card
  • Do not close old credit cards. Say after a year you apply for another card and receive much higher limit and much lower interest. Do not close your first card. Use it infrequently to avoid being closed due to inactivity. The reason is, closing that card will bring the average age of your credit history down
  • Take measures to protect yourself from identity theft . Keep you card in a safe place. Either file away monthly statements in a safe place or make sure to shred them before disposing them. If you receive mails soliciting you for “pre-approved” cards (you will likely start getting some of these “junk” mails once you get approved for one card) and you don’t want to use them, shred them before disposing them. Check your credit score annually for free at AnnualCreditReport.com. My ex-roommate’s spouse was a victim of identity theft – believe me you cannot afford to have your credit score thrashed by some low life!
  • If you are married, repeat above for spouse . Credit score is for individuals. It will help in the future if both you and the spouse have pristine credit scores. Suppose you want to apply for two separate loans, say one for the car and one for the house, then you can take the two loans separately on each of your names and avail the good interest rates. Also, in the unfortunate event that the primary head of the household dies, it will help for the other person to have their own credit history.

Wow, that is one long post! And these are just the basic rules. There’s a lot of other interesting aspects to credit cards (fees, rewards, bonuses etc etc). We will just have to come back to it in another post, I guess 🙂

 

Photo Credit: Lendingmemo.com

A quiet night in: an exercise in frugal saving.

image1As much as any couple, family or group of friends might like going out, it’s never cheap. Whether it’s fine dining or going out to your local bar or restaurant, these are costs that add up all too easily. They may seem cheap once in a while but once you start doing it on a weekly or semi-regular basis, it becomes a larger and larger chunk of your expenses.

In contrast to this, understanding the benefits of a quiet night in can prove useful. More than offering something different and relaxing it can demonstrate a way to stay cheap and cost effective whilst still enjoying the usual perks of life.

Food

If you go out to eat, you should know how much this can cost. Cooking for yourself is usually the cheapest but there are still other options. For instance, if you have the urge for Chinese food, it may be cheaper for everyone to pool money together for chinese takeaways than visit your local restaurant. It’s much cheaper and doesn’t have the added costs of additional drinks and restaurant prices and other service charges that are often forgotten about.

Entertainment

Likewise, if you’re not going out, there is nothing to stop you from being social. Your home can prove entertaining enough with the right company. Cheap entertainment can be anything from a movie rental (if you’re only going to watch it once, don’t buy something you don’t need) to various games, which offer entertainment again and again. These are all cheap, whether you use it once or buy it to use again and again. This is another lesson to be learnt in saving, by understanding the real value of something.

If you come across some movies that you and your friends love, it makes sense to purchase the DVD so you can all watch it whenever you like. Luckily, you can save money by ordering your DVDs online, so you do not have to worry about breaking the bank. To make things more interesting, consider having each person purchase a DVD online and then choosing between your favorites every time you gather.

Additional expenses

Hopefully the two areas above should highlight how easy it is to cut down on those little costs for every social occasion but there are always other areas to look at. Take your appearance, for instance. If you don’t go out to an expensive restaurant you might not need to risk your best shirt or shoes. It can also save on other expenses, such as getting a taxi home late if you’ve been drinking or other travel costs.  So, next time you think you might go out, suggest staying in to the others and see how much can be saved.

Start Your Own Business for Less Than $500

If your friend announces that they’re going to start their own business, what is your immediate thought? If you’re like most, you probably imagine them opening up shop in a building downtown and selling something to customers that walk in the front door.

This is certainly one way to start a business, but in today’s world I certainly wouldn’t recommend it. The building itself would cost $200k or more, and then you would most likely have to buy a bunch of inventory to stock the shelves, and then you would have to hire someone to sell it! It’s an expensive way to do business and it fails more often than it succeeds.

Since the internet has come along, starting a traditional “brick and mortar” store is most often for broke thinkers. It costs way too much to start and the potential for profits is extremely slim.  Self-employment and working online is possible as well.

 

Two Factors For Your Business

If you’re thinking about starting your own business, you must at the very least take into consideration to factors: (1) how much are the start-up costs, and (2) what are the potential earnings?

If you open up a baseball card shop downtown, the initial costs will be astronomical and even if you sold thousands of baseball cards each month, what are the odds that you’ll earn enough profits to stick around for the next 20 years? The odds are incredibly slim. This model has high start-up costs and low earnings potential.

Now, what if you took that same baseball card store idea and decided to make a virtual store instead? The initial cost of your website would be $100 or so and the potential sales wouldn’t just be to one neighborhood, but to the entire world! Your earnings potential is now through the roof!

 

Related posts: 

Building your Reputation as a Freelancer

Finding Private Health Insurance When You’re Self-Employed

Work From Home Opportunities

Freelancing Options

Advantages of Becoming a Virtual Assistant

 

Start-Ups for $500 or Less

So what businesses can you possibly start for less than $500? I can think of quite a few actually. Pretty much any business online will cost you almost nothing, but in case you’re interested in doing something that doesn’t force you to use your laptop, here are some other ideas:

1)      Lawn Care – All you need is a lawn mower and a weed whacker and you’re in business! If you already own them (which many of us do), then your start-up cost is practically nothing.

2)      Spring Clean-Up – Nobody like to pick up rotten leaves and sticks. You could make a business of this and clean-up! All you really need is a wheelbarrow and a pair of working gloves. Now that’s a cheap start-up.

3)      Detailing Cars – People very rarely clean their cars inside and out and would much rather pay someone else to do it for them. You’ll have to buy a few supplies, but in total, this really shouldn’t cost you more than $100.

4)      Vendor – If you have a lot of parades and events in your area, you might want to try your hand at being a vendor. The cart could get a little pricey, but with a deal, I bet you could keep it under $500.

5)      Build Cabinets – All you need is some lumber and a few tools. If people like your work, this business could really turn into something!

6)      Mechanic – If you know how to repair cars today, you could be in pretty high demand. If you already have the tools, then this start-up will cost you absolutely nothing and it has a tremendous upside!

 

Are you thinking about starting your own business?