Amherst Wire

The Money Article Every College Student Needs to Read

(401(k) 2012/Flickr)

(401(k) 2012/Flickr)

Hae Young Yoo, Editor in Chief

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Katelyn Richards, a sophomore biochemistry major, stops by Starbucks a few times a week to get her favorite Oprah Teavana Chai: $10, $3.75 each. On Friday, she checks her bank account online to see if she has enough money for drinks this weekend: $15. She hands her debit card across the counter Saturday night to pay for a slice of pizza at Antonio’s; the total cost of junk food for the week: $15.

Many college students spend $40 or more a week on unnecessary commodities like coffee, alcoholic beverages, and late night munching. A little rectangle of plastic that people love to swipe makes spending money without thinking even easier.

“People spend a lot because they use their cards and don’t realize how much they’re using,” said Richards. A credit score comes with a credit card, and she says she knows about this score, the three-digit number that will determine if a person can be trusted to take out loans to buy a house or a car. But she does not know where she can go to find it or how to improve it. The easiest ways to build a good credit score involve always paying bills on time and staying below the credit limit on a card.

John Ulzheimer, president of consumer education on creditsesame.com says a credit score is completely different from a credit report. The report is a collection of all financial information, such as the listing of public records and liabilities. The score is the numerical grade that is assigned to the credit report.

People can check their credit report for free once a year at annualcreditreport.com under the right of federal law. It has been set up for about a decade now. There are dozens of places that will sell a credit report or a credit score, and several credit card companies include a customer’s credit score every month as part of the statement.

“It’s become a product. There are also a variety of credit score websites that give them for free. These are commercially available scores, and the chances of getting the exact score that lenders will see aren’t that high, but still getting it is healthy. It’s basically the same one because it is based on the same credit report. People assume that long as they pay bills on time, they will always have a good score, but that’s not it. It’s a complex system, and that’s why it’s a good idea to keep getting the reports and scores to see how well or poorly you’re doing,” said Ulzheimer.

The most common type of credit score is called the FICO score, which is based on reports from the three main national credit report bureaus: Equifax, Experian, and TransUnion, according to usa.gov. This website is the U.S. government’s official web portal and includes the numbers for the three credit report bureaus and links to websites that will calculate and provide credit reports, credit scores, and FICO scores.

When people get their credit scores, it will come with factors as to why it is not higher. “They can act as a roadmap to improve your score,” said Ulzheimer. In some cases, there might not be anything a person can do to improve his score but wait.

A myth that many people have come to believe is that employers can see credit scores during the hiring process. Employers can see credit reports, but not the same one that lenders and insurance companies can see that include the scores.

“I think a lot of people who aren’t experts on the topic use the terms interchangeably as if they are the same thing, which has resulted into this very troublesome myth that has been perpetuated by people in the media. So there’s this confusion about credit reports and credit scores. And it’s true, it’s perfectly legal that employers can have access to a credit report, but not the ones that lenders have access to,” said Ulzheimer.

Zac Bissonnette, personal finance writer and author of “Debt-Free U” and “How to Be Richer, Smarter, and Better-Looking Than Your Parents” said in a phone interview that it is crucial to not have a bad credit score “because that will screw up your life.” The University of Massachusetts Amherst, class of 2011 graduate also advised that students can build good credit by paying off student loans once they graduate.

“If you don’t have a credit score, it won’t make it impossible to get an apartment, as long as you don’t have a bad one,” said Bissonnette. Since employers cannot see credit scores, “it’s important for a job to not have a bunch of unpaid bills. What isn’t important when getting hired is having a good credit score.”

But maintaining a good score is still crucial for the future, and using cash is the best way to control spending. Bissonnette recommends putting the amount that can be spent each week or month into individual envelopes for different expenses. If the envelope with money for food runs out, that’s it. Hopefully a lesson will be learned.

“People in general tend to spend too much,” said Bissonnette, “College students are single, and it’s easier to buy food than to make it. It’s socially a more active part of their lives.” But they do not have the means to fund it. “If you’re spending $50 a week, $2,500 a year, times four years, that’s $10,000 , and more than a third of your student debt,” he said.

Students who are spending and putting themselves more in debt in college expect things to be different once they graduate and get a job. They believe that once the paychecks come in, they will switch from spending money to saving it. But people stick to old habits and patterns, and if they are not attentive, their spending will rise with their incomes.

“The way that you manage a small amount of money is a good predictor of how you will manage large amounts of money. The money you’re going to blow on coffee when you’re in college probably doesn’t matter, as long as you have the mindset to save better later,” said Bissonnette.

Students like Richards who have gotten so used to swiping their cards and splitting bills at restaurants need to visit the ATM more, and get reacquainted with the feeling of bills in their hands.

Hae Young Yoo can be reached at [email protected] or follow her on Twitter @drinkyoohoo

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The Money Article Every College Student Needs to Read