Making the most out of your debt: Credit card reward points!

For many people, relying on credit is just a fact of life. I wish I could sit here and tell you that I have the luxury of only using my credit cards in order to build up my credit profile; however, that is simply not the case. Every once in awhile an expense (whether big or small) will unexpectedly pop up into my life, and I will be caught without any free cash flow to cover it at that moment. It is times like these that I am so thankful to have my credit cards to get me out of a bind. In some of these situations paying a little bit of interest is by far preferable to foregoing payment on that unexpected expense, or missing out on a great opportunity (ie: your car breaks down and if you do not pay to fix it you will have no way to get to work; or, you win free concert tickets but need to pay for transportation). 

One of the best ways to make myself feel better after a big credit card purchase is by taking a look at my statement, and seeing all of the great rewards points that I have accrued. It can really help to take away the sting of an upcoming interest expense! If you are able to get your score into the good and excellent ranges (see my post on credit scores), you will be eligible for some of the top credit cards available, and it's these cards that will provide the best rewards packages to cardholders. 

To demonstrate this concept, I will share a personal story: At the end of the Spring 2013 semester, I realized that, because the accounting department completely screwed me, I would have to pay for an online class that, had things worked out as originally planned, would have been paid for by my graduate assistantship at Lehigh. There was no good time in the upcoming Fall semester to take the class, so I absolutely had to enroll over the summer, and with such short notice, I didn't have the $2000 in cash to fork over for tuition. 

After taking a good look at my finances I decided that I could reasonably (and responsibly!) open up a new credit card to use to pay my tuition. I did a lot of research, and in the end settled on a card that I had been pre-approved for. It was the Citi Thank You Preferred card which, at the time, was offering 20,000 bonus "ThankYou Points" after $1500 in card purchases within 3 months of account opening. 

Here's where the story gets really awesome: 20,000 bonus points translated into a value of $200 worth of gift cards. By paying my tuition with the card (and thus spending more than $1500 in the first three months), I received my 20k bonus points. And due to the point structure on the card, I also received an additional point for every dollar spent on the card. When all was said and done, I paid for my tuition (an expense that I absolutely had to incur. I needed to take that class!) without accruing any interest because of a 0% intro apr feature, and I was rewarded with approximately $250 in gift cards (to stores that I got to chose amongst many options such as: Bloomingdales, Nordstrom, Brooks Bros, iTunes, etc). It was a total win-win!!!

There are a number of considerations when choosing a rewards card. Check out the video below, or this blog post, to learn about the three big categories of rewards programs: points, miles, and cash back. Another awesome resource when trying to pick a new credit card is creditcards.com. Here you will be able to search through available cards in a number of ways, such as: by type of card (low interest, balance transfers, 0% apr, rewards program, etc.), or by credit quality (excellent, good, fair, bad, or no credit at all). 

Now that I have opened your eyes to the intoxicating world of credit rewards, I want to leave you with a few words of caution. Credit card rewards can legitimately be addicting. It is not uncommon for people to get so wrapped up in the introductory deals that they begin to haphazardly open new accounts, reap the benefits of the introductory points, and then close them before moving on to the next rewards program venture. This can and will have a negative effect on your credit score. Do yourself a favor and pick two or three rewards cards that work the best with your lifestyle and shopping habits, and then stick with them. 

Good luck and happy card hunting!!

Bouncing back: the not-so-short road toward credit score repair

I could sit here and try to think of some clever and original way to put this, but I really think that the guys and gals over at myFICO.com had it right when they said that, "repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score." While this can surely be upsetting and disconcerting, it is a fact of life, and if anything, it should only serve to further emphasize the point of my last post, which was that establishing credit, and doing it responsibly, is OH SO important.

If, like many Americans across the nation, you happen to find yourself with a less-than desirable score, there are definitely some ways to (slowly but surely) rebuild your profile, and demonstrate to potential lenders that you are a creditworthy and responsible young adult. Luckily for all of you broke college students out there, you proooobably have another couple of years left living within the collegiate bubble to set some positive changes into motion before it's time to do fun big boy and girl things like, say, support yourself and like...I don't know...sign a mortgage?

Anyways, the first step to improving your credit score is, obviously, to pull a copy of your credit report and gain an understanding of the factors that have contributed to your particular score (Duh!). Due to the fact that you have already read through my last post, I am confident that the areas for improvement will be relatively apparent once you start taking a look.

Here are just a few tips that can really help to set you on the right track toward credit score repair:

• If you don't already have a credit card, get one! If you're truly broke, you shouldn't open a card with the intent of going on a really exciting and over the top shopping spree. Instead, do yourself a favor and  do something responsible like buy your groceries each week with the credit card and then pay it off in full when you get your bill using the cash you would have otherwise spent in the first place. A good rule when you're starting out is to try to never charge more than the cash you have in your bank account.

• The older a card is on your credit profile, the more of a positive impact that card can have on your score -- don't think that closing all of your old credit cards will help to improve your situation. I know from my own experience, my oldest card (and thus most valuable to my credit score), is also the card with the most egregious interest rate. I NEVER carry a balance on this card, but I keep it active by throwing small charges on every once in awhile (and then paying them off in full). This leads into the next tip...

• Unused credit cards on your profile will have a negative impact on your score: While you don't want to go and close out all of your accounts, you also don't want to have cards that are just sitting stagnant for long periods of time. If you have 2 or 3 credit cards, make sure you show them ALL a little bit of love. I have two cards with fan-freakin-tastic interest rates, so if I am going to carry a balance on any card, it will be one of those two; however, even my nastiest card deserves a charge from time to time.

• Pay your bills ON TIME!!!! This one should go without saying, but payment history can make or break you. Lenders want to see that you are capable of making regular payments on your debt, and that they will be on time. If you struggle with time commitments, do yourself the abso greatest favor and set some google calendar reminders, or sign up for auto-pay with your credit card company. So worth it!

• Finally, don't over do it: having 2-4 credit cards, each with a different type of rewards program, is pretty normal. Having 5..6...7+ credit cards is definitely not okay, and if you find yourself with that many than I would suggest seeking out a legitimate credit counselor because you may have a serious problemo on your hands. Also, you never want to be maxing out these cards. If you have a total credit limit of $5,000, this does not mean that you are in the clear to go buy $5,000 worth of nonsense. You want to keep your debt around 20-30% of your total limit (and never more than 50%).

So anyways, sorry for the lengthy post. What can I say? I just get so excited about credit scores!!!!! As always, please leave me a comment or drop me a message via the contact box in the right sidebar. Next week I'll be reviewing slash promoting a really cool online tool to help you build a budget, and keep track of your finances. 

I leave you with this:

The deets on your credit score, and why it's so important.

Okay so, before we jump into talking a little bit more about one of the easiest ways for a broke college student to survive, while simultaneously building a good credit profile, I wanted to give a little crash course on the ever-mystical Credit Score.

As I mentioned in my last post, we will all one day need to rely on our credit score for one thing or another, whether it's applying for a car loan, undergoing a credit check for a new apartment lease, or buying your first home; a good credit score can be the difference between a really manageable interest rate, and one that could really cramp the style of your chic, new, post-graduate lifestyle.

So, what is a credit score? Well, basically, it's a score derived using a formula developed by the Fair Isaac Corporation (hence the name, FICO score). The score is calculated for the three U.S. credit bureaus (Experian, Equifax, TransUnion) using information from your credit report (a summary of your credit accounts and payment history). Every person receives a credit score from each of the three credit bureaus which, due to minor differences in the credit profile information collected, can differ slightly. The scores are used by lenders as a predictor of the level of risk and creditworthiness associated with a given borrower.

Okay, well what information is used to calculate the scores? This is a more difficult question to answer. There are many factors that are taken into consideration when calculating a score, and below are the relative weights associated with each [oversimplified] description of the inputs into the equation:

• 35%: payment history -- do you pay your bills and fees on time?
• 30%: the ratio of the amount owed to creditors, and the total credit available to you. As a general rule, you want to be using about 30 percent or less of your total credit limit (and definitely no more than 50 percent). 
• 15%: the length of credit history. Borrowers who have longer credit history are considered less risky because lenders have more information about their borrowing patterns and more assurance that payments will be made on time.
• 10%: the number of accounts recently opened compared to the total number of credit accounts, and the number of recent inquiries into the borrowers credit profile (Ex: a borrower applies for a new credit card so the lender check's the individual's credit report to dictate credit limits and interest rates. Too many of these credit checks in a short period of time will have a negative impact on a score).
• 10%: the types of credit used -- revolving credit (like a credit card account) vs. a mortgage with fixed monthly payments. Each type of credit can tell lenders something different about the risk associated with a given borrower.  

Wow. Now that I am completely overwhelmed, how can I go about checking my credit report and scores? Fortunately, you are allowed one completely free credit report from EACH of the three credit bureaus every year. This means that, every four months, you can check your credit score for free! To order your report, use annualcreditreport.com which is the only authorized website under federal law. There are other services to help monitor your credit score, but they cost $$ that broke college students like us would much prefer to spend on important things like the latest iphone, new designer work out leggings, natty light, or tickets to that musical festival you have been DYING to go to.

Scores range from 300-850, and with a score of around 700+, you are in great shape. For those of us that may be suffering from a less than desirable credit score (or even worse...NO credit score!), I will detail some tips and tricks to slowly building that bad boy back up in a later post. 

I hope you all found this post to be informative and helpful! Much of the information was simplified to make it more digestible, so please please please comment, or use the contact box in the sidebar, to let me know of any questions you may have, or topics that I can clarify!