I.I.I. Offers Financial Tips to Help College Graduates Manage Debt and Build Good Credit
INSURANCE INFORMATION INSTITUTE
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NEW YORK, May 5, 2009 — Faced with a challenging job market and thousands of dollars in student loan and credit card debt, many of this year’s college graduates must take positive steps to protect their credit score, according to the Insurance Information Institute (I.I.I.).
“Learning how to manage student loans, credit cards and other debt is essential for new college graduates,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I. “Establishing these financial skills early on and working to build a good credit standing will affect their lives in a surprising number of ways both now and in the future.”
The College Board estimates 60 percent of all U.S. bachelor’s degree recipients borrowed money to fund their education, according to Trends in Student Aid 2008. The average debt per borrower at all four-year institutions stood at $22,700 in 2006-2007, according to the same report. Moreover, nine in 10 undergraduates reported using credit cards for direct education expenses (e.g., textbooks, school supplies), with the typical annual charge rising to $2,200 in 2008 from the 2004 average of $942, Sallie Mae found.
Sally Greenberg, Executive Director of the National Consumers League, pointed out that young people are frequently unaware that their bill paying history will affect their credit history. “Many graduates don’t think they need to worry about their credit score until they need a mortgage to buy a house,” cautioned Greenberg. “It can come as a shock when they find out that employers routinely access credit scores as part of the application process.”
Good credit can help savvy graduates save money in the following situation:
Applying for a Job: Potential employers routinely check a person’s credit history as part of the hiring process. With many applicants vying for positions in today’s tough economy, a solid credit history may provide a competitive advantage in the job market.
Renting an Apartment: Landlords often rent to the person or couple with the best credit history. In many urban areas, available housing is at a premium. Those with a good credit history will more easily find an apartment to rent and may avoid a larger security deposit and/or the need to have the lease co-signed by a parent or employer.
Signing up for Utilities: Local phone, cable, electric and gas companies will on occasion waive cash deposits for those with solid, established credit histories.
Securing Loans: Having a better credit history makes it easier to get a car loan or mortgage, often at a more competitive interest rate.
“A credit-based insurance score is different from a credit score,” explained Salvatore. A credit-based insurance score is a number produced by an analysis of an individual’s credit history, aimed at assessing whether a potential policyholder is likely to file a claim. Meanwhile, a credit score weighs an individual’s ability to repay a lender in the future in order to borrow money today.
The I.I.I. suggests that graduates work to build a positive credit history in the following ways:
Keep balances low and do not close established credit cards: Use no more than 30 percent of your available credit at any given time. If you decide to control your credit card use by cutting up a credit card, do not close the account as this will raise your balance-to-credit-limit ratio and could have a negative impact on your credit score. Credit scores are based on factors including payment history, amounts owed, length of credit history, new credit and types of credit used. For example, major bank credit cards with good payment records are better for your score than department store cards, which generally carry a low credit limit.
Set up a budget and stick to it: If you are a recent college graduate who has secured your first job, sit down and determine exactly how much money you are earning, and how much you owe. Too often people make financial decisions based on how much they think they will earn, rather than what they are currently making. Many graduates also underestimate the cost of day-to-day living—try writing down all your expenses for a month or two to get a realistic sense of what you are spending, and where you may be able to cut back, if necessary.
Pay bills on time: Pay all of your bills on time every time even if that means automating your payments to ensure you are never late. This will help to build a strong credit history. A pattern of late payments not only lowers your credit and credit-based insurance scores, but late fees and interest payments can add up and make it harder to pay down the balance.
Keep in touch with creditors: New college graduates are often in transition, so once credit accounts are opened, let your financial institutions know if you are moving. You want to avoid having a credit card bill that was lost in the mail affect your credit record.
Monitor your Credit Report: Check your credit reports at least once a year. If there are mistakes, get them corrected quickly. If your report is less than stellar, take positive steps to improve your credit standing.
For more information about insurance and credit, go to the I.I.I. Web site.
For related audio, go to College Students and Credit.
For related video, go to VNR: College Students and Credit.
The I.I.I. is a nonprofit, communications organization supported by the insurance industry.
Posted in: College Grads Managing Finances