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Office of Undergraduate Studies

Helpful Tips for Your UNL Experience

Establishing Financial Credibility

 

At some point, to buy a car, rent an apartment or buy a house you will probably need credit.  Being recognized as person who is responsible with money will facilitate your getting credit when you need it.  College is a good time to establish your credit rating.  Responsible use of each of the following contribute to financial credibility.  It is not true that the only way to establish a solid credit rating is through an expensive credit card. Credit cards can help, but they offer folks without  a sound financial practice the most expensive credit of all and, the quickest way to undermine your financial credibility is to rack up debts you cannot pay.

  1. Find a conveniently located bank, one with a sound reputation for service and answering questions. Find one with accessible ATM so you are not out of  money after hours or and have to pay large transaction fees in the ATM's of other banks, or worse use a credit card for expensive "cash advance."
  2. Checking accounts: Money in a standard checking account does not earn interest; money in a "now account" does if you keep a minimum balance wonderful incentive to keep an emergency fund.  (If you go for a new account, shop for the best interest.)  A debit card is like a check, it taps directly into money you already have on deposit. Note, however, that ATM transactions are done immediately.  There is no time delay for a check to clear the bank. You should not kite checks, you cannot kite an ATM to the benefit of your rating.
  3. Savings account.  This is less accessible but can pay higher interest.  Look around.  What are the fees?  Can I save on them if I keep a minimal balance?  What balance?  What interest rate?  When is it compounded: you earn more if the interest on your savings are compounded daily, just as you spend more if the interest on your loans is compounded daily.  How difficult is it to withdraw money, to transfer it to another account; are there fees to do this?  Are my savings insured by the Feds: "FDIC" or "FSLIC? "
  4. What else enhances financial credibility?   Have a job and develop a steady work record.  Pay bills, including rent,  promptly.  Use credit carefully, but use it.  Take out a couple of small loans from different institutions and pay them back on time. Periodically ask that your line of credit be increased.  Do not max out, just because more is available does not require spending it
  5. Credit accounts.  Potential creditors (banks, landlords, card companies, stores) looking at your credit rating like to see at least 2 active accounts: a credit card and a store account, say.  (See material on next pages re: credit.)   Pay at least the minimum on each account.  It is far more preferable to pay it all each month.  To do so is not only cheaper, it shows responsibility.  In any event, use no more than 80% of credit line; this saves you from ugly and expensive mistakes and leaves you with access to money in an emergency.   Do not apply for more than 2 credit cards at a time: companies share information through credit agencies and there is suspicion of folks who suddenly seem to need a lot of credit.  Having a credit account where you are chronically behind in payments will seriously harm your rating.   Do not run up bills you cannot pay so as to develop a credit rating: the rating you get will not help.
  6. A Shared Account is one shared with someone else.  Interest is much cheaper if the other person has an established positive credit rating.  To build your own rating, be sure that your name is actually listed on the account.   Over time, consider putting some accounts in your name and some in your partner's so you both have some independent credit history in case of death or some other misfortune "do you part."
  7. If you change your name, make sure the right Social Security number transfers with your name.
  8. Insurance.  (Given college costs, beware of over-investing in insurance):
    1. Health Insurance: most students are covered by their parents' policy; to qualify you must be enrolled for 9 hours of academic credit.  Medical costs are high. If you are not covered by your parents' policy it is important to develop an alternative. Student health insurance can be arranged through the University Health Center.   At your age and station in life this may be the most important insurance you can carry.
    2. If you have child rearing responsibilities and you have a job, it might be good to investigate disability insurance to help you if something happened to prevent your continued income.
    3. Again, if others depend on you, you might consider life insurance at least in the amount to pay burial costs and to cover your other obligations should you die.  "Term insurance" is cheaper, runs for a specified period of time, but it accumulates no cash value.   "Whole life" policies are more expensive, but they are also a form of savings. They accrue cash value and interest and can be borrowed from.

Folks in the bank (yours or your family) or a local County Extension Agent can go over issues like this with you. They would like to do so, if the truth be known. The success of a bank depends on the reliability of its customers.

-- Written and/or complied by James A. McShane