Establishing Credit – How to Build a Credit History

Posted on August 3, 2011 by Lisa Florian

Which came first, the chicken or the egg?

Image extracted from: A Vegan Ballerina

We’ve all heard it before, the old “chicken or egg” question now let’s apply it to a real life scenario. You apply for a job and they’d like you to have more experience yet you need the job to get the experience. Sound familiar? The same applies to your personal credit situation. You need to establish credit so that you can build your credit history for future purchases including a car, home etc. However, when you apply for credit without any prior history, it can oftentimes be difficult to obtain. Chicken and egg.

Using Credit Cards

Believe it or not, it may seem like a great idea to use cash for all your purchases but it will come back to hurt you in the end when you are trying to make one of the purchases mentioned above – unless of course, you are using cash for that too which is unlikely. Establishing credit and using it wisely is what you want to do but the first thing you need to do is find an institution that will issue you credit so you can get started.

Establishing Credit with a Secured Card

Image extracted from: The Breaking Story

For those working on establishing credit, a secured credit card is usually the easiest type of credit to get. It requires you to make a cash deposit that the creditor can keep if you do not make your payments. (You will get the deposit back otherwise.) The credit limit is often low, and the interest can be high, but you may be able to convert it to a regular credit card after a year or two of on-time payments. You want to make sure that the creditor reports your account to the credit bureaus – if they don’t, you won’t be establishing credit and a credit history.

Getting a cosigner

Another strategy for establishing credit is to have someone with a good credit score cosign an account for you. This requires a great deal of trust on the part of the cosigner – if you fail to pay, he or she will be held responsible for the full balance. If you are under the age of 21 and are applying for a credit card, you have no choice but to obtain an application that contains the signature of a parent, guardian, or other individual 21 years of age or older who will take responsibility of the debt or proof that you have independent means of repaying any credit extended. Gone are the days of applying for a credit card on a college campus to get a free t-shirt without having verifiable income. That’s how I got my first credit card and got started on establishing credit.

A safe bet is to apply for a secured credit card, use it a couple times a month for purchases where you’d normally pay cash and then pay it off at the end of the month. You aren’t racking up debt but you are building credit.

For more information on secured credit and establishing credit, visit us at riverset.com or call 412.488.2525.Riverset Credit Union is open to those in Allegheny, Beaver and Butler Counties.

Free Checking Account? Watch Out for Hidden Fees

Posted on May 3, 2011 by Lisa Florian

Image extracted from: Reason.com

One of my recent blog posts (Financial Responsibility & The Payday Lending Debt Trap) discussed challenges faced by recent grads, the excitement of a first job, a paycheck and the importance of financial responsibility. Oftentimes when just starting out in what my father refers to as the “real world”, a checking account may serve merely as a pass through entity for your funds – in comes the money and then out it goes to pay your bills – no reason to worry about hidden fees. (Mind you, it is wise to set aside 10% for savings and you should make it a habit now– but, let’s face it, that isn’t always possible). So, the money is in, the money is out – the question is, will more be “out than in” with your free checking account hidden fees?

Let me explain. You may or may not be aware of a number of regulations within the financial industry that have been passed over the last year or so which have impacted financial institutions’ “lucrative” stream of fee income as it pertains to overdraft fees etc. So, the days of FREE checking now seem to be morphing into the days of free checking with fine print and hidden fees. The new regs have forced institutions to find alternative ways to make up for the lost income and Free Checking has become the target.

A truly free checking account is one with no minimum balance and no monthly fees (or any other hidden fees), period. The new “free” checking is – your account is free “if you have X on deposit” or “if you do all your banking online and never visit an office – if so we’ll charge you” so on and so forth – a lot of fine print and a lot of rules and if you can’t comply, it could cost you. It’s true, free checking as we know it may become extinct. Check out this article on bankrate.com.
Recently, WPXI’s consumer reporter, Robin Taylor, came to Riverset to gain our insight on the subject and Kelly Friedl, our Director of Operations, took the interview. Check it out.
The bottom line is – read the fine print and be smart with your money so you are not hit with hidden fees. Not only do you need to know what you can afford, you need to know what financial institution best fits you. Why should you have to pay more for your own money?

Riverset Credit Union is open to those in Allegheny, Beaver and Butler Counties. View info on all of our products and services, including our Free checking at riverset.com.

Financial Responsibility & The Payday Lending Debt Trap

Posted on April 1, 2011 by Lisa Florian

Image from: worradmu

To recent grads a great expectation that comes with the first job is to finally have a real paycheck! After all the school work, internships, and, often times, living on a really tight budget, you can finally have a real income. But beware! Even though you are probably making more money, this is the time to practice financial responsibility and learn how to manage your money wisely, not to fall into a debt trap.

Before the emergence of credit cards, the phrase “I’ll have to wait until payday” to purchase something was more frequently stated and followed than it is in today’s society. We live in a world of instant gratification and the need to have things now seems more prevalent than the concept of financial responsibility. This mentality has fueled the expansion of the payday lending industry and we feel that the upcoming workforce should know better.

Debt Traps

Many individuals turn to payday lending and check cashing outlets in order to borrow funds from a future paycheck prior to its receipt. Payday outlets advertise these loans as quick and easy ways to get cash which is attractive to a growing number of consumers for reasons such as unanticipated expenses; lack of financial education which prevents the consumer from creating a realistic working budget and those who simply have a mistrust or lack of confidence in traditional financial institutions such as credit unions or banks. They may feel that a financial institution can’t help them because of poor or no credit history or they’ve bounced checks in the past which haven’t been repaid and thus prevents them from securing a checking account.

Payday Lending

The payday lending debt trap locks borrowers into a cycle of revolving credit with an average APR of 400% and fees as high as 1,000% APR. When the payday loan is due, generally within 14 days, consumers have the choice to pay it off in full with the postdated check they were required to supply at the onset of the loan or pay fees and refinance for another term if available.

Example: In an emergency, Jane needs to pay $300 for her rent. To cover the shortfall, she takes out a payday loan. She writes a postdated check for $345 – the $300 owed to her landlord and a $45 payday lender fee. When her paycheck comes in, she discovers that there isn’t enough to pay back this loan and meet her expenses so, she extends the loan for another two weeks and now owes $390 due to an additional $45 fee.

In the past few years regulators have made strides to tighten payday lending laws throughout the country and instill into the public arena the importance of financial responsibility.

Be Smart!

Image extracted from: Lazdina Blogspot

Don’t fall victim to these debt traps! In this case, what may appear convenient at the time will cost more in the end.

Do your research and open an account at a credit union or a bank that is right for you. Many of these institutions even offer free financial counseling and money management services to help educate consumers.
If there is a history of bounced checks – pay off your debt. A number of conventional institutions will give you a second chance.
Break the cycle. If you are using payday lenders and check cashing facilities, there are other options. Spread the word to your friends and families about financial responsibility.

Riverset is open to individuals in Allegheny, Beaver and Butler Counties. To learn more about managing your money and financial responsibility, visit riverset.com.