A college degree prepares us to tackle many things, but credit card debt is not one of them. In our four years at Scripps, the average student doesn't usually learn the five components of a credit score, what a universal default is or that her credit score could affect future employment opportunities. Kyle Shelley graduated college as a business major, and even he felt ignorant about the technicalities of financial life. "The things we learn in school are great, but often too abstract," Shelley explained. "I'm here to give you applicable, real world financial information for our generation."
Shelley is young, dresses sharply and works hard to relate to our generation. He graduated college four years ago, and realized (rather mortifyingly) that he didn't know anything about operating financially in the real world, in spite of his business major. He got into credit card debt, signed up for loans and contracts he didn't quite understand and soon learned from his mistakes. Shelley's current mission is to educate undergrads, to prevent them from encountering the same problems he did.
The largest arc of Shelley's argument was about credit cards, and the importance of borrowing in our society. Everyone has to borrow money in order to build a credit score. A credit score enables us to take out crucial loans in the future, which will be necessary to purchase a car or a house. However, there can be a negative side to debt, particularly in America (and more specifically, among young people, who are the demographic most likely to go bankrupt and leave credit card debt unpaid). "People will spend 14% more when they charge things to their credit card," Shelley explained. "This is a good way to decide if your purchase is a 'need'—if you're willing to pay for it with cash."
Shelley's distinction between "wants" and "needs" was also rather unconventional, and undermined the lessons most have heard from their parents. "Is Starbucks a 'need'?" Shelley asked. "Yeah, of course it is! If you can't get through the day without it, it's a ‘need' for you." He did suggest various ways, however, to save money on our habits and routines. For example, get a Starbucks Card and save money on your daily cup of coffee, or buy basic items from the 99 Cents Store instead of Target. He also stressed that being financially responsible doesn't require eliminating the purchase of all "wants." The most important procedure is to construct a Cash Flow statement by subtracting expenses from income. The extra money is disposable income, which can be saved and spent on "wants."
After discussing purchases, Shelley returned to his exploration of credit cards. "Your credit score is one of the most important numbers in your life," Shelley explained. "It affects almost everything." A credit score is, essentially, a measure of your trustworthiness as a borrower, a measurement through which a lender assesses the probability that you will pay their loan back, on time. The range of a credit score runs from 300 to 850, but you should aim for a score above 700. A low credit score will require the lender to charge you significantly more interest than a strong score, so it is essential that you focus on this number. The five factors which affect your credit score are: payment history, available credit, length of history, credit mix and number of inquiries. Inquiring about your credit score too many times, closing your oldest credit cards, having too many credit cards, going beyond your available credit usage and being inconsistent about repaying credit card bills can all lower your credit score.
Shelley suggested that online banking is a good way to practice constant loan repayment, and assured that longevity and consistency of cards will be the strongest factors in maintaining a good credit score.
The most important thing to understand, Shelley stressed, is that our credit score is absolutely vital to do almost anything. Considering that only 11% of college students know their credit score, he encouraged everyone to take steps now to understand such a significant part of their financial future.
For specific information on checking your credit score, comparing credit cards or information on debt, visit Kyle Shelley's website at www.allineducation.com.