College Years and Credit

College Years and Credit

Maeve came home a couple weeks back for the night so she could go vote with me.  I was so proud of the kid.  It was her first time voting for president and just like everything in her life . . . she had done her research on the two candidates policies and voted accordingly.  

So over breakfast at Mary Ellen’s, I told Maeve it was a perfect opportunity for some of Dad’s “life lessons”.  After an eye-roll or two, Maeve and I caught up on how things were going for her during her second year of college. We talked a bit about the challenge of online learning, how she was preparing for final exams coming up, and what she hoped her GPA would look like. I joked with her that she would have to worry about her GPA the rest of her life, they just call it your credit score when you get older. She looked a little confused and asked me what I meant by that. I got serious and told her I had noticed that she had begun to receive what looked like credit card offers coming to her in the mail and it was important that she be very careful about her credit going forward.

Now, Jill and I believe it’s important to educate our girls about money and finance through all phases of their lives, or at least while they’re still under our roof.  With Maeve in her first few years of college, this seemed the right time to talk to her about credit and its impact. I shared with her stories and examples of what I’ve seen and experienced about credit use, particularly from older clients and friends that have sent kids off to college.  

I often find that college students and young adults need to be aware of the impact of their credit score and develop an appreciation of the many ways it can affect their lives. In many cases, the impact often occurs as soon as they graduate and head out into the “real” world.  Think about some of the big firsts that happen as you leave college. You are trying to get your first job, rent your first apartment on your own, maybe the military, or perhaps buy your first car on your own. There is a decent possibility that your prospective employer will check your credit score as a measure of reliability or maturity. It’s almost certain to happen when you try to rent an apartment or buy a car.  Anything that you might need to finance is probably going to be impacted. A good credit score can make a significant difference in what your monthly payments are going to be on that car or anything else you might want to finance. The lower your credit score, the more interest you’ll pay, or even worse, you might not even qualify. I know a lot of us in older generations didn’t pay attention to our credit scores until we thought about buying a house, but these days, the earlier you gain awareness the better.

One thing I emphasized with Maeve was the importance of making timely payments. We joked about the ominous warnings we both got from our elementary and middle school teachers about how a bad mark would go on your “permanent record.”  Well, when it comes to credit, there is similarity there. A negative comment or action on your credit (or something that ends up going into collections) can be reflected on your credit score for up to seven years. And speaking of collections, some companies will send you to an outside collection agency in as soon as 120 days, so don’t put those bills aside and forget about them.

I told her awareness is so important when using credit cards. College kids need to keep track of what they spend and where they spend it. In the same way the pursuit of a solid GPA involves knowing when assignments are due and when mid-term and final exams take place, managing your credit requires some basic discipline. If you don’t pay attention you may end up in a world of pain. 

I finished my “life lessons” by explaining the two reasons she should be careful with credit cards at any age. First, your credit cards are tightly connected to your credit score. If you over utilize credit or are late on payments, that will drive your credit score down and may require significant repair work when it’s time for a significant purchase like a house or a car.  Secondly, credit cards are usually a young adults first step into the world of credit that they will be living in the rest of their lives. If they can avoid early mistakes, the rest of the journey becomes much smoother.

As I paid the bill, Maeve said she hadn’t really thought about credit before and she might have some more questions down the road. “Thanks Dad!”  I smiled at the kid and couldn’t help to think how proud I am of her. However, sitting there I couldn’t help but chuckle as I thought, speaking of scores going up, now that she’s moving on from her teenage years, you know, the years where Dads aren’t that bright?  Heck, maybe my IQ might be headed back up.  Yeah, sometimes the dad jokes you tell yourself are the best.  

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at jeff@cutterfinancialgroup.com.

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