Building and protecting a good credit history may not be on your course list this semester, but it should definitely be a part of your educational plan.
Good credit can be crucial not only to buying a home or car in the future, but also for things like renting an apartment, starting a cellphone plan or getting good rates on things like loans or insurance.
Having and using a credit card can be a good way to build a good credit history but only if you don’t abuse the privilege. Building a strong credit rating begins, ironically perhaps, with making sure you only use money you actually have and pay it back when asked.
“The number one thing you want to do is pay your bills on time,” said David Malamed, a forensic accountant at Grant Thornton.
Missed payments can ruin your rating quickly and consistently maxing out your cards also lowers your scores, so be responsible.
Getting a free T-shirt or coffee mug just for signing up for an extra credit card might seem like a win-win situation, but be wary of annual fees or extremely high interest rates, sometimes in the vicinity of 29 per cent or even higher. Read the fine print before you sign anything and really consider how many cards you need — after all, you really don’t want to be charging more to credit cards than you can actually pay back anyways. If your wallet ever gets stolen, more cards will mean more trouble and more risk of fraud for you.
Once you’ve started building your good credit, you need to protect it. Malamed says fraud is one of the most common ways good credit can go bad and vigilance is often the best protection.
“Religiously check your credit card and bank statements and investigate them — that’s really your first step into avoiding a risk of fraud,” Malamed said.
Look for anomalies like strange payments for things you didn’t buy or double-billing on single items and speak with your credit provider right away if you see something unusual.
Never respond to solicitations for credit cards over the phone as you can’t be sure who the person on the other end is. The personal information you give away could potentially lead to identity theft and, in a worst-case scenario, Malamed says a scammer could use your personal information to call up a credit provider, pretend to be you, open new credit cards under your identity and wreak havoc upon your credit rating by racking up debt.
“It can be an enormous headache and a lot of hours and stress you didn’t ask for to deal with it,” Malamed said.
Malamed recommends checking your credit score every six months to a year to make sure what lenders are saying about you matches your credit activities, and to spot potential mistakes or fraud.
Popular credit-report service providers include Equifax (econsumer.equifax.ca) and TransUnion (www.transunion.ca).
Manage finances
• Create a financial plan. Decide how you will allocate your money among books and supplies, food, clothing, entertainment and other items, set a plan and stick to it.
• Make it monthly. A monthly financial budget plan is a good choice — weekly may be too difficult to manage and longer periods than a month could cause you to fall too far from your plan.
• Keep track. Set up a budget sheet, set your plan and keep track of everything.
• Time your spending. A good approach is to try to time your spending — be a bit frugal early in your budget period (for example, in the first couple of weeks). Plan your nights out for later in the budget period.
• Don’t skimp on nutrition. Don’t sacrifice good nutrition to save a few dollars. You will be better off with healthier foods that cost a little more.
• Work together. Pot luck and co-op dinners with friends are a great way to save money, try new types and styles of foods, and take a needed break from studies.
• Remember: Budgeting isn’t easy. If your plan is starting to slip, don’t be shy — talk to your parents and tell them where you stand. Catching problems early and dealing with them is always the right thing to do!
– BY PROF. ERIC KIRZNER, ROTMAN SCHOOL OF MANAGEMENT, U OF T
