Are you heading for the “bad place”?

Many students do not recognize the importance of maintaining a good credit (FICO) score. A bad credit score can lead to, at least, two problems which should concern you. First, a low FICO score can be used by employers. Employers do not want to hire employees in financial difficulties. Financial difficulties cause stress and inattention at work, thus reducing employee productivity. Secondly, for similar reasons, credit scores are often used by insurance companies to set rates on insurance, especially automobile insurance. The conclusion, if you want a job and want the costs of driving to be the least expensive it can be, you need to work to increase your FICO score. Here are five credit behaviors that can take you to “the bad place” (where credit scores are low).

1) Make your payments late. Don’t be a slacker. Make sure your payment reaches the credit card company before the due date.

2) You are young and eager to establish your credit. That is, you are too young and too eager. Each credit application can lower your credit score, as you are potentially able to borrow more each time you apply. Remember, responsible use of a credit card you’ve had for a long period of time can increase your FICO score.

3) Destroying old credit cards too soon. When you open a new credit account, one is tempted to cancel the old credit account as soon as possible. While this may be best for you, if you’ve a spending problem, cancelling the old account actually will increase the percentage amount of your total potential credit you currently have outstanding.

4) Your spending is poorly timed. You make very large credit purchases too close in time to your job, insurance, or other applications. This increases the percentage of the total credit you have the right to use that you have already borrowed.

5) You do not check your credit score and correct errors. Errors in your credit report hurt you. Check your credit score at least twice per year. Check out http://annualcreditreport.com to see your personal credit history. Correct errors, if any.

Of course, a surefire way to avoid a low credit score is to only borrow for convenience or for an investment in yourself, a business, or a home. Use the credit cards you use responsibly and try your best to not incur finance charges. To my knowledge, few find Financial Success with a negative net-worth.

For those of you in the Columbia, Missouri area: Next Tuesday (9 September 2008) at 9:30 a.m., we are hosting Dan Iannicola, Jr., Deputy Assistant Secretary for Financial Education at the United States Department of the Treasury. The talk will be held in 22 Tate Hall on the beautiful University of Missouri campus. His talk is named, “Don’t let your credit put you in a bad place”. (Yeah, I borrowed his title as the “take-off” for this week’s Financial Tip.)

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

Maximize the Benefits of Education

Robert O. Weagley, Ph.D., CFP®

Last week’s Financial Tip of the Week concerned matching the cost of college with the benefits, with particular emphasis on borrowing. It occurred to me that it is just as important to maximize the benefits from education as it is to minimize the costs incurred. So, for the new school year, try these on for size:

1) Take responsibility for your learning. Yes, you have teachers but they’ve got to have learners to make it all come together.

2) Work on improving your time management. Reduce your TV, video game, party, and other non-productive times. Try finding the best place on campus to study between classes and use the 9:00-5:00 block of time to go to class and to study. You will be surprised how much more free time you’ll have and how your grades will improve. (Talk about a win-win!!)

3) Join an club. Meet new people by joining your departmental student group, a club athletic team, a church group, or other organization that causes you to push your envelope and expand your horizons.

4) Set up appointments to meet professionals in your chosen field and ask them if you can interview them about their job and life. Professionals love to help students discover themselves.

5) Work out. Stay healthy. Eat well.

6) Look into study abroad, undergraduate research, or community service opportunities to take you beyond the classroom and to stimulate your thinking and learning.

7) Look into campus resources that help you with finding summer employment, resume writing, financial counseling, or other activities to help build your human capital.

8) Take a course that is different from usual. If you love Shakespeare, try a course in practical physics. Try things you’ve never tried. (Of course, it is real nice if does count toward graduation and is safe and legal.) Go to a ballet, opera, rock concert, pep rally, or country diner – something you’ve never done before. Such stimulation can be powerful in ways you may not initially see.

9) If you are considering graduate school, learn more about what it takes to be accepted into the best schools in your field. Then try to do what it takes. If you are not considering graduate school, answer the question, “Why not?”, until you believe your answer. If you don’t believe your answers, consider graduate school alternatives.

10) Encourage Financial Success in yourself and others you know. (Doing the above will have a lot to do with your success in making that happen.)

11) Enjoy the time you’re a student. I guarantee you will miss it someday.

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of MissouriColumbia, MO 65211