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How is a FICO Credit Score Determined?

FICO CREDIT SCORE BREAKDOWN

When wanting to establish credit or raise your credit score,  a basic understanding of the comprising elements can assist you when making financial decisions.  A higher credit score leads to future benefits including lower interest rates, higher loan limits, and overall approval to credit card and loan applications.

How is a FICO credit score determined?

  1. Payment History (35%).  The most important factor in calculating credit scores is payment history. History is used to forecast future behaviors.  Making consistent and on-time payments to your credit cards and loans is one of the best ways to improve your credit score.
  2. Amounts Owed (30%).  FICO views those who habitually max out their credit cards as people who cannot handle debt responsibly.  Borrowers should maintain low credit card balances, and although there is no exact utilization ratio, many financial experts refer to the ‘30% rule’.  Example – If your credit card limit is $1,000, try not to charge over $300.
  3. Credit Length (15%).  A longer credit history offers more information on financial behavior.  It is impossible for a person who is new to credit to have an excellent score, as it takes time.  Those with credit should maintain their long-standing accounts.
  4. Types of Credit (10%).  A mix of credit (accounts, credit cards, and installment loans) is taken into consideration to determine a credit score.  A borrower with a good mix of credit generally represents less risk for lenders.
  5. New Credit (10%).  Borrowers should avoid opening too many credit lines at the same time, for such financial behavior might suggest financial trouble.  Consumers are encouraged to apply for and open new accounts only when needed.

For more resources and information on credit, visit the UWW Financial Literacy Center.

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What is a Credit Score?

What is a credit score?

A credit score is a three-digit number that calculates the risk a lender takes when you borrow money.  This score is based on your credit report, and is generated by a mathematical algorithm.  The Fair Isaac Corporation (FICO) credit score is used by 90% of lenders (source:  myFICO.com).

Why is your credit score important?

Your credit score is an important piece of your personal finances.  It helps lenders accurately predict your ability to repay a debt on time.  FICO scores range from 300 to 850, and a higher number indicates a lower risk to lenders.

If your credit score is low/poor, it may be difficult to find a financial institution or credit card company to lend you money, and if they do, most likely the interest rate will be unfavorable.  An increasing amount of landlords and potential employers are starting to check credit scores before leasing or hiring, and insurance companies may check credit scores when determining your premium costs.

How can I access my credit report and credit score?

As a consumer, you have access to a free annual credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) using annualcreditreport.com.  Unfortunately, your credit score is not included on your credit report.  To obtain your credit score number, you would need to purchase it from a score provider or one of the major credit bureaus.

For additional information on credit and credit management, students should visit the UWW Financial Literacy Center’s website or schedule a financial coaching session today!

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Subsidized vs. Unsubsidized

When discussing financial aid, commonly used terms include subsidized and unsubsidized, but what is the difference between those two words in regards to student loans?

Direct Subsidized Federal Loans are available to undergraduate students who demonstrate financial need.  The US Department of Education pays the interest on your loan while you are in school (at least half-time status), for the first 6 months (grace period) after you leave school, and during any deferment (postponement) periods.

Direct Unsubsidized Federal Loans are available to undergraduate and graduate students.  Demonstrating financial need is not a requirement.  You are responsible for paying interest during the life of the loan.  While in school, during the grace period, and during deferment or forbearance, you may choose to let your interest accrue, as opposed to making payments. The accrued interest is added to the principal of the loan.

For more information, visit the Federal Student Aid website, the UWW Financial Aid Office, or the UWW Financial Literacy Center.

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Success! 4 Simple Tips for College Budgeting

Starting to budget while in college can result in learning how to manage money and plan for the future.  Here are 4 simple tips to creating and maintaining an effective budget:

  1. Track spending.  Record every penny you spend for at least a month before creating a budget.  Be honest about where you are spending your money, and keep a spending log.
  2. Identify Income and Expenses. Use a budgeting worksheet to document your income, then expenses. Income sources would include student loans,  job earnings, gifts, and more. Expenses should come directly from your spending log, and broken into categories like housing, food, entertaining, etc.
  3. Do the Math.  Calculate income minus expenses.  If you have money left over, consider adding to your savings account or an emergency fund.  If you calculate a shortage, start identifying categories where you can cut back.  This is a good time to question your needs versus wants.
  4. Reexamine and Adjust.  Income and expenses change over time.  Maybe you received an additional scholarship, or your landlord raised the rent.  When changes occur, it’s time to reexamine and adjust your budget to stay on track.

The UWW Financial Literacy Center has many free budgeting resources available to students.  Visit our website, or schedule a financial coaching session today!

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What is the Cost of Attending?

It’s now August, and many families are seeking the total price tag for this upcoming year’s college education.  Here at UW-Whitewater, the Cost of Attending Calculator allows students to select personalized options to obtain an estimated total cost of attending dollar amount.  Variable choices include student status, type of housing requested, meal plan purchase, and parking.  Although just an estimate, this information can be used by families when making financial plans.

 

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What If I Didn’t Get Enough Financial Aid?

Whether you’re starting your last or first year of college, what are your options when financial aid doesn’t stretch far enough?

  • Seek Scholarships.  Apply for additional state, local, and private scholarships.  Use these tools from the NASFAA, the US Department of Labor, and UW-Whitewater to apply for additional gift aid.
  • Appeal Award.  An appeal to the UWW Financial Aid Department is an option; however, your appeal will be more successful if there was an error on your FAFSA application or there has been a change in family circumstances.
  • Part-Time Work.  During the school year and summer, work a job.  Many students work to offset the cost of their education. Be sure to balance your job with your academics.  Check out the UWW Handshake job board for employment opportunities both on campus and around the Whitewater community.
  • Live at home.  If you are within commuting distance, consider saving on room and board fees by living at home.
  • Take Out Student Loans.  Generally, federal student loan interest rates are lower and have more flexible repayment options compared to private student loans.  However, when federal aid isn’t enough, private loans through financial institutions may be obtained.

College is expensive, and paying your bills is a part of the process.  Decide on a plan of action, and follow through.

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Summer Finance Checklist for Students

Whether this is your first year of college, last year, or somewhere in between, summer is a great time for you (and your parents) to get your financial planning in order.  College students often find themselves living within tight budgets, but pre-planning during the summer months may help with daily financial decisions when away at school.

  • Figure out and identify how you’re going to pay for tuition and other college expenses.  There are billing and payment dates each semester that need to be taken seriously.
  • Create and stick to a budget.  List each income source (scholarships, grants, work study, job, savings, parents, federal loans, private loans, etc.) and estimated expenses. Common expenses often overlooked are course/lab fees, daily toiletries and supplies, extracurricular activities, traveling home during breaks and holidays, and gift-giving.  Any amount leftover at the end of the month should be place into savings for future emergencies.
  • Open a checking account.  Consider opening a checking account and using a debit card.  Cash is convenient, but easy to spend.  Checking accounts keep your money safe, and they help track where your money is going.
  • Apply for a credit card (when ready).  It’s a great way to start building credit as long as you use the card wisely and pay off the balance each month.
  • Obtain appropriate insurance.  Every family and household is unique.  Contact your insurance provider for information on specific policies that work for you.
    • Personal article policies for items like student electronics, musical instruments, sports equipment, and jewelry are offered by insurance companies.
    • If living off-campus, renters insurance can be obtained to protect against property loss and liability.
    • If living on-campus, verify parent homeowners policy coverage for extension to your dorm room.
    • Auto insurance rates may vary depending if you drive while at school or leave your vehicle at home.  In addition, check for student discounts (resident student, good student, anti-theft).
  • Become financially organized.  Determine how you are going to keep track of financial records, bills, and bank statements in order to maintain records and pay bills on time.  Consider an accordian file, envelopes, or manilla folders in a secure location.  Being organized will help avoid late fees and damage to credit scores.
  • Be vigilant of identity theft dangers.  Password protect your computers and phones.  Store important documents (birth certificate, social security card, etc.) in a safe and locked location.  Be cautious with information posted on social media sites.

While the first day of classes is just over a month away, the days of summer are starting to fade.  Consider this checklist when readying yourself to come/return this fall.  Visit the Financial Literacy Center‘s website and like our Facebook page for more information and resources on financial topics.

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Is College Worth It?

With the rising cost of higher education, you might wonder if college is worth the time and money.  Does additional education really make a difference in earning potential?

In a May 2018 article, using information obtained from the U.S. Census Bureau, Amelia Josephson, of SmartAsset, identified the average U.S. salary by education level.

Average Salary by Education Level:

  • Average Salary with Less Than a High School Diploma – $25,256
  • Average Salary with a High School Diploma – $35,256
  • Average Salary with Some College, No Degree – $38,376
  • Average Salary with an Associate’s Degree – $41,496
  • Average Salary with a Bachelor’s Degree – $59,124
  • Average Salary with a Master’s Degree – $69,732
  • Average Salary with a Professional Degree – $89,960
  • Average Salary with a Doctorate – $84,396

Although you may become a high wage earner without a diploma or degree, the statistics emphasize the overall benefit of higher education in relation to earning potential.   Remember, salary isn’t everything; therefore, only you can determine if college will truly be worth it.

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Protecting Your Identity

A study by Javelin Strategy & Research identified 16.7 million victims of identity fraud in 2017. This was a record high number of victims, making detection more important than ever before. Because of clean credit and living in close quarters, college students are no exception to being victims of identity theft. Although the precautions listed below are aimed specifically at college students, in general, they apply to all ages when helping to avoid identity theft.

Identity Fraud Precautions 

  • Paperwork.  Bank statements, credit card offers, and any paperwork containing account information and social security numbers should be shredded or destroyed.
  • Dorm Room.  Foot traffic from new and old friends, both in and around your ‘home away from home’ is inevitable. Be sure to leave your important documents (social security card, birth certificate, etc) at home or in a secure, locked space. Mail should not be left out where others can rifle through or gain access.
  • Electronic devices.  Smartphones, tablets, and laptops should be locked or password protected when not in use. Never store personal information, account login information, and confidential data on your computer’s hard drive.
  • Passwords. Avoid using obvious passwords, such as your birthday, phone number, anniversary, addresses, or names of pet. Strengthen your passwords by using an 8-12 character combination of small and capital letters, symbols, and numbers. Create different passwords for each account.
  • WiFi. Never shop or check your bank or credit account information using a public hotspot or connection. These activities should occur when on a password-protected Internet connection.
  • Secure Websites. Use secure websites for purchasing goods and services. Often times, the URL will start with https://. Always log out of secure sites, including online banking apps and programs. Check your website browser settings to be sure it does not save login information.
  • Credit Card Offers.  Credit card applications appear in student mailboxes and at various campus events. When ready to apply, use a secure website from a private, password-protected Internet connection or in-person at the financial institution.
  • Social Media. Adjust your privacy settings to make it more difficult for people to view your information or post to your page. Avoid over-sharing personal information when posting to social media accounts.
  • Phishing. Avoid emails attempting to ‘phish’ for information. They look legitimate, but when clicked, redirect you to another site where your personal information may be recorded.

Bottom line:  be cautious with your personal and private information. For more information on protecting your identity, access the Financial Resources located on the UWW Financial Literacy Center’s website.

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Summer On A Dime

Summer is a time to enjoy sunshine, warm weather, and a break from the stress of school.  Finally, you have some time to relax and enjoy life, but may come up a little short on cash.  Here is a list of inexpensive or free activities to keep you busy this summer.

  • Have a backyard campfire
  • Volunteer at a local animal shelter or nonprofit organization
  • Photograph a sunrise or sunset
  • Plant a garden
  • Plan a game night
  • Go hiking
  • Visit the beach
  • Plan a picnic
  • Visit the local library
  • Start a book club
  • Visit local parks
  • Plan a movie night
  • Attend a local farmer’s market
  • Camp in the backyard under the stars
  • Visit a thrift store
  • Attend an outdoor movie
  • Go biking on a trail

You have earned a break from the day-to-day grind of studying.  Enjoy yourself this summer!