Do you have bad credit?

Photo by Casey Gomez

The majority of schools in the U.S. do not teach personal finance classes, even though most students would benefit greatly from them. High school graduates quickly have to learn how to pay taxes, build credit and learn financial responsibility for things that their parents used to do for them.

The most basic financial advice is fairly straightforward and pretty obvious but most people do not actually follow it. With smartphones and computers, keeping track of the money you earn and where you spend it is incredibly easy. Billguard, Mint and Personal Capital are just some of the many available apps to help with money management.

You should always keep track of how much money you are making. Check your pay stub for inaccuracies and find out how much you owe in taxes. If there are any problems, it is much easier for employers to fix mistakes sooner rather than later. Come tax season you do not want to deal with back taxes. When you know how much you are making, creating a budget is much easier.

Track your spending for a few weeks to see where your money is going to, then sit down and write out a monthly budget. Start with basic expenses like food, housing, transportation and utilities, then move on to hobbies, clothing, savings and medical expenses.

Try to cut down on areas where you are overspending, which for college students are usually alcohol and eating out too often. Also pay attention to recurring payments like Spotify, Amazon Prime, gym memberships or any online memberships that you are not using. Remember to cancel free trials before they begin charging you and purge whichever memberships you do
not use.

If at all possible, set aside money every month to save as an emergency fund. Ideally, your emergency fund should cover six months of rent, gas or bus fare, utilities and food. Having a good emergency fund allows for flexibility between jobs once you graduate and prevents debt over
unexpected expenses.

A lot of these categories might not apply to you right now because your parents pay for your rent or food, but you can still budget the money they give you and start the habit of being financially

The quantitative measure of financial responsibility in our society is your credit score. Employers, landlords, banks and insurers look at your credit score to find out if they can trust you or determine the rates they will charge you. It essentially tells people whether or not you are a good investment.

A credit score primarily measures your credit history, the amount of debt you have, the amount of debt you have paid or not paid and the ratio between your available credit and your debt.

Credit history is built by taking out loans and using credit cards while making payments on time. Always meeting deadlines to pay money back is extremely important because it lets potential lenders know that they will not lose money by giving you credit.

The amount of debt you already have also factors into this decision. If you already have significant debt relative to your income, you would not make a solid investment. Additionally, if you are using most of the credit you have — particularly if you do not have much credit to begin with — potential lenders may think you are not responsible with what you already have. Credit scores are incredibly important which is why you should always know yours and correct mistakes that may appear.

The first step to raising your credit card limit is to check your credit score. All three major credit agencies — Transunion, Experian and Equifax — are required to give you an annual credit report for free. By checking your credit score you can see what is affecting it and find mistakes that could
possibly lower it.

Next, get a low limit credit card and use it. By paying it off every month and not defaulting on payments, you will build credit history and show you can be responsible with what you have. First, check the credit cards available through the bank or credit union you already use.

If those are not appealing to you, see if you are eligible for a student credit card through Discover or Journey. If not, check out the OpenSky Secured Visa. Because the secured card is targeted at people with bad credit or no credit, it requires a deposit to act as collateral if you stop paying.

Maintaining these cards as long as possible will benefit your credit and closing your oldest credit card in the future will damage your credit. Plan on keeping this card indefinitely, even if you only make one small purchase on it per month.

Another way to raise your credit score is to know what debt you owe. Some apartments use outside companies to deal with utilities so make sure you meet those payments as well; otherwise, they will end up negatively affecting your credit report.

Student loans and car loans should be paid on time. If that is not possible, call whoever you owe. Most companies will be understanding if you are late on a few payments as long as you warn them beforehand, which will prevent hits to your score.

Medical debt can become overwhelming but if you call the hospital billing department, they can usually lower the amount you need to pay and help you set up a payment plan to deal with the expenses without defaulting.

Any old debt on your credit score — there should not be any but if there is — should be verified. A simple letter from a lawyer requesting verification of the debt can often get it removed from your credit history or provide information about how much money you owe and to whom. Whatever you do owe can easily be negotiated down if it has already been sold from the original company.

Lastly, if you find yourself susceptible to having your identity stolen, freeze your credit. Freezing your credit prevents loans from being taken out in your name. You can check if your information was leaked in the Equifax breach on their website, but your identity may also be at risk if you have had your accounts broken into in the past or your social security number is compromised.

Freezing your credit is free with Equifax after their security breach, but the other two companies require fees depending on your state and your vulnerability to having your credit stolen. If you are planning to take out a loan in the near future, do not freeze your credit; if you are not at risk of having your identity stolen, just check your reports regularly and you should be fine.

This information is only the tip of the iceberg when it comes to personal finance, but it is easy to find more information online. If you do not want to actively search, follow the personal finance subreddit and check out their advice for students and young adults.

Personal finances can be scary, especially with such limited education provided on the subject, but there is a Foundations of Finance course available over five weeks for Tech students to get started in becoming financially literate.