May 10, 2016

Fianace lecture aims to help students understand credit

Francesca Gariano

In time for graduation season, Cristin Barone, business development representative from The Ohio Educational Credit Union (OHECU), spoke to students at Mather Mansion April 26 about managing personal finances. Barone touched on subjects ranging from building credit, budgeting and protecting identity from theft.

  Barone used her background in business and finances to lecture the group about good practices when it comes to using credit cards, establishing and adhering to a budget and keeping safe in a world where data breaches and identity theft are becoming more common.


“The average student loan debt for graduating seniors as of last year is $35,000,” Barone said. This statement started the conversation on paying off loans and consolidation, leading into topics such as establishing credit.


Barone encouraged everyone, including students, to check their credit score once a year. She recommended using annualcreditreport.com, a website where you are able to pull your credit score with no additional costs. Asking questions and learning more about what is out there are important steps for students to follow to make good decisions when it comes to paying off loans.


Barone recommended that students should get a credit card, but to make sure that they are financially able to pay it back.


“Open up a credit card of your choice, do your shopping,” she said. “Make sure it’s something that fits you. Look for the lowest interest rate possible, look for the no annual fee if you can.”


Barone suggested using that credit card to pay off a monthly bill of the same amount each month, such as renter’s insurance. Instead of using a debit card, use a credit card and when the bill comes, pay it off automatically to avoid accruing interest with a carry-over balance.


“You need to establish credit,” she stressed. “You need it in order to get certain things. You may need it before you get your first apartment, you may need it in order to get your first car. You might be able to get those things, but if you have not established some sort of credit history, it might cost you more when it comes to the interest rate.”


Barone suggested not bringing a credit card to the store if the handler is not trusted to use it wisely. Being disciplined, she stressed, is one of the most important parts of having a credit card. Interest can accrue quickly and it is better to avoid inflated fees and payments.


When it comes to credit scores, Barone said that to receive any kind of loan, a score of 620 or higher is typical. Anything above 700 will get you a good interest rate as well. Credit scores are important because they are looked at by many people, including automobile insurance agencies, employers, utility companies, banks and phone companies.


If somebody does not have credit established already, she suggests going to credit unions or looking into receiving a secured credit card. Credit unions offer different options for credit cards for students to help establish credit without getting in over their heads. Secured credit cards are tied to an account that need a certain amount of money to be kept in at all times.


Barone said that knowing the interest rate is the most important thing to know about credit cards. The annual fees, credit limit and loan term can all be found in the fine print. Don’t skip over it in the contracts that must be signed. Read it and know what you are signing up for.


When managing multiple credit cards and loans, she stresses it is important to pay bills on time. One late bill can lead to annoyances like a universal default.


“Universal default works like this,” Barone said. “Let’s say you have a car loan, a regular credit card, and a credit card like a Macy’s card. Let’s say you’ve been doing great, you’ve been paying everything on time. Your Macy’s bill just doesn’t show up one day and you don’t think about it until two weeks have gone by and you’re like ‘I haven’t gotten my Macy’s bill.’ Seems like a legitimate mistake.”


“You go ahead and make the payment, but you’re a few days late. Next thing you know, you get notices in the mail that your interest rates on your other credit card went up. You didn’t do anything wrong. You paid that one on time. That’s universal default. By being late to one creditor on a payment, any of your other creditors, without having to tell you why or anything like that, can just jack your rate up. Because they’re afraid that you are now a risk and they can do that.”


Credit card owners have a responsibility to pay bills on time and to manage money and funds properly, she said. To save your credit score, it is important to pay bills on time, create a savings deposit and to be selective about cards and loans. To ensure that bills get paid on time, Barone suggests setting payment reminders as alarms on your phone, multiple days leading up to the due date.


She also emphasized that creating a budget early is an important step in making sure that your money is being saved properly. To start a budget, it is important to know your income. If you don’t have a fixed salary, using your lowest amount of money earned in a week and multiplying that by four will get you to your monthly income. It is important not to overestimate when it comes to income for a budget.


Knowing your expenses is also an important aspect of budgeting, Barrone said. Tracking monthly spending will show patterns in spending. Being honest with yourself will allow for a more accurate budget when it comes to spending.


Barone said expenses can be split up into three categories. Fixed expenses are the same cost all of the time, like rent. Variable expenses are still monthly and regular, but they tend to vary in cost, like groceries and utilities. Periodic or occasional expenses aren’t monthly, but they happen occasionally, like gifts or car repairs.


“If you have a plan and you have it written out, it’s going to help you stay on track,” Barone said. “Don’t just wing it. Have it [savings from budgeting] so you know that it’s there.”


Opening up separate savings accounts also allow for better organization, she explained. She suggested setting it up through a direct deposit where your paycheck will automatically disperse a certain amount into separate accounts before it goes to your checking account. An ideal cycle for payday would be getting paid, direct deposits into savings accounts, paying bills, buying groceries and then using the remainder for entertainment until the cycle repeats.


Of course, she noted, having credit cards can lead to various financial problems if not used correctly. Aside from messing up credit scores and accruing massive amounts of interest and debt, there is also the factor of identity theft. Advanced technologies, while great and convenient, have opened up doors and made it easier to steal identities and credit card information.


“You have to assume that people are out to get you because they are,” Barone said. “Not everyone, but there are so many people who are waiting for you to let your guard down.”


She warned the group about skimmers, devices put over card readers that look identical to the machines. She suggested wiggling them before inserting your card into a scanner at the gas station or at the ATM. If it is very loose, she suggests not using it and going inside.


Other ways to avoid identity theft would be to shred all financial documents, avoid storing passwords in your phone, not sending credit card information via text or e-mail and avoid leaving your personal belongings, like a purse or wallet, out in the open.


Barone said it was never too early to start saving. Being able to manage finances early will allow for benefits in the future, such as a better retirement fund, lower interest rates and more opportunities such as jobs and homes.




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