Author: Shannon Insler

What Is a Perfect Credit Score? It Might Not Be What You Think

Posted on by Shannon Insler

This summer, CNBC reported the national average for the most popular credit score, the FICO, hit an all-time high of 700. That’s just 150 points below the highest FICO score you can get, an 850.

Although this is good news for Americans’ credit health, Type A household-money managers might wonder what they have to do to get to that elusive 850. Unfortunately, the goal of achieving a “perfect” credit score of 850 isn’t that simple. And it might not even be worth your while.

But if you just can’t help but wonder, “What is a perfect credit score, and how can I get one?” here’s some information to help.

What is a perfect credit score — and why is it so hard to get?

Before going too far into the idea of a perfect credit score, there are a few facts you should know about credit scores in general:

  • There are two different credit scores: FICO and VantageScore.
  • FICO is the original credit score and still the most popular.
  • VantageScore came along just a few years ago and is quickly gaining in popularity.
  • Lenders and companies who look at your score choose which one to work with.
  • There are various models of each of these scores, and lenders don’t always upgrade to the new model right away…
  • … On top of which, there are also various models based on the type of credit you want…
  • … All of which means you have far more than just one credit score (upwards of 40 credit scores, in fact), and they can vary from each other quite a bit.

Now that you have the basic facts straight, the next thing to know is that credit scores come in ranges. Below are the ranges for the FICO score:

what is a perfect credit score

Image credit: myFICO

And here are the ranges for the VantageScore:

what is a perfect credit score

Image credit: VantageScore

As you can see, the two scores are similar in range. But even if you were able to hit “perfect” status on one of the scores, you could still be showing up as less than perfect on the other.

What’s more, you can have a perfect credit score for a new model of the score while showing up as less than perfect in the old model of the same score — and even have a different score based on the type of credit you might want to obtain.

Confused yet?

In the end, there’s just no need to chase after a perfect credit score in all possible variations that the score might have.

Instead, the best thing to strive for is the best credit score you can achieve, with excellent being the top range you can land in. If you can reach excellent, you’ll receive the top benefits of having the highest score, such as access to more credit and lower interest rates on the credit you borrow.

What you should focus on with your credit score

Just because you don’t need to fixate on having a perfect credit score doesn’t mean you shouldn’t work on improving your credit. Rod Griffin, director of public education for Experian, explains why:

“It is very difficult to get a perfect score, and that really isn’t the goal. If you borrow money, there is always some risk that you will be unable to repay it. You could be injured at work, get hurt in a car accident, or contract a debilitating illness, and simply not be able to repay the debt — through no fault of your own.”

“Credit scoring systems recognize that risk and account for it,” Griffin says. “Instead of a perfect score, your goal should be to have a score that is good enough to get the credit you need at the best rates. Once you’ve reached that threshold you don’t need to worry about getting better.”

So, how can you improve your score? Whether you’re looking at FICO or VantageScore, the factors considered are similar:

what is a perfect credit score

Image credit: Experian

As seen above, the most important things to worry about are payment history, how much you owe, the age of your accounts, the type of credit you’re holding, and your credit mix.

In other words, you can work toward having excellent credit scores by doing the following:

  • Pay all of your bills on time. If you’re in default, get out of it.
  • Reduce the amount of debt you owe, especially on credit cards.
  • Keep accounts open, even after they’re paid off.
  • Know that having a credit mix is good — so if you have a credit card as well as a car loan, student loan, and mortgage, then that helps your credit.

Finally, remember that one of the worst myths about credit scores is the idea that you should hold a balance on your credit card to build credit. This is completely false.

If you want to use a credit card to build credit, pay it in full every month, and you can reap the rewards of credit-building while also avoiding debt.

Keep it simple

Hopefully, it’s a relief that you don’t have to worry about getting and maintaining a perfect credit score. But if you’re still worried about how credit scores work, follow Griffin’s final words of wisdom:

“Pay your bills on time, every time. Keep your credit card balances as low as possible. Apply for credit only when you need it. Do those things, and your scores will take care of themselves.”

Interested in refinancing student loans?

Here are the top 6 lenders of 2017!

The article What Is a Perfect Credit Score? It Might Not Be What You Think originally appeared on studentloanhero.com

Image by rawpixel via 123RF

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4 Essential Steps to Decide if College is Worth it for You

Posted on by Shannon Insler

Is college worth it? That’s a tricky question. College isn’t cheap, but many believe it’s the way to obtain a “good” job. You have to spend money to make money, right? But does that make it worth it?

It depends. The cost of college has created a situation in which 44 millionpeople have had to use student loans to get their degree. And 53 percent of those with student loans would change their past borrowing decisions if they could, according to the Financial Industry Regulatory Authority’s 2016 National Financial Capability Study.

While that doesn’t necessarily indicate regret over going to college, it does suggest regret in how they handled the cost of college. So one of the questions shouldn’t just be “Is college worth it?” but also “Are student loans worth it?” Here’s how to make sure you can turn the answer into a “yes” for you.

Making your college education worth the cost

The best way to see if college is worth it is to understand that everyone’s situation is different. Then consider the four questions below to come up with an answer that’s right for you.

1. Do you have a clear plan for success as a college student?

College should be fun, but it shouldn’t turn into a life experiment costing you tens of thousands of dollars. To make sure college is worth the debt, you need to have a clear plan of how you’ll be successful.

Even if you don’t particularly like school, you can optimize your course load to get good grades. Strategically schedule your classes for times you’re most alert. Make sure you don’t overload yourself with too many challenging courses at once.

One of the most financially crippling events is taking out student loans and then not finishing a degree. A 2016 College Board report cited data showing that 24 percent of students who dropped out defaulted on their student loans within two years. Only 9 percent of those who did get degrees defaulted.

Leaving school without a degree or certificate puts you in a position of taking on debt without the benefits a degree can offer. This includes more employment opportunities and higher pay potential. Finishing your degree is crucial.

Get to know yourself and what you need to do to succeed. Talk to people about the study habits that work best for them. Take a look at the resources your school might have to offer. The better you do in college from the start, the more worthwhile your investment can be.

2. Can you find an affordable way to go to college?

The next step is to take on as little debt as possible. Here are a few things you can do.

  • Take core classes at a community college. Then, transfer to a four-year school so you can spend far less on your first two years.
  • Take summer and winter break classes to finish your degree more quickly. (Just make sure you do the math, as sometimes these particular classes cost more per credit.)
  • Go to a local school so you can live at home — avoid room and board costs.
  • If you receive offers for school-specific scholarships, consider choosing the school that gives you the most money. (The tuition remaining should still be less expensive than your other options.)
  • As you evaluate schools, give extra consideration to those offering work-study programs. Those can enable you to earn money towards your degree.

Once you’ve figured out how to shave as much off your college costs as possible, think about how to pay for the rest.

  • Use websites such as FastWeb to look for scholarships you qualify for. Apply for as many as possible before you resort to loans.
  • Fill out your FAFSA to see what kind of federal financial aid you can get. This can help you avoid private student loans.
  • If you need help paying for your education, opt for the cheapest financial aid first.

3. Can you calculate how you’ll handle student loans after college?

If you have to take out loans to pay for college, figure out how much they’ll cost. Then use this student loan payment calculator to see what your payments will look like when you graduate. That way, you’ll know if you can actually afford the school that’s on the top of your list.

Keep in mind that your calculations might change over time due to unforeseen circumstances. This includes a hike in tuition costs or a changed major that leads to longer schooling. While there is some unpredictability in this, that doesn’t mean you can’t make sure you’re as prepared as possible.

Once you know what you’ll be dealing with, start crafting a plan now for how you’ll handle the loans. Will you start saving for an emergency fund while you’re in school so that you’ll have a cushion ready when you graduate? Do you know how to change student loan repayment plans if needed? Start figuring out what you’ll want your finances to look like now so you can set the plan — and the habits — early.

4. Do you know what kind of work can get with your degree?

If you’re lucky enough to know what you want to study early on, you can choose a school based on the quality of that program, their job placement record, and the cost of the program compared to other schools.

But even if you’re not yet sure what you’ll major in, you can start your research on what to expect after graduation with the help of your school’s career center and sites like TheMuse. Knowing how much you can expect to earn in different fields will help you evaluate them from a financial perspective.

Take a look at potential pay and how competitive the job market is in your field with the help of Glassdoor and Payscale. After you’ve found some salary ranges, use sites such as Paycheck City to understand what the take-home pay will be. Then go back to your student loan calculations to see how much of that salary would be taken up by your student loan debt.

So, is college worth it? The stats say yes

In December 2016, the College Board released a report called Education Pays 2016: The Benefits of Higher Education for Individuals and Society. Updated every three years, this report analyzes various life outcomes for those who do and don’t have a college degree.

Here are just a few key findings from the report:

  • Those with a degree earn more on average. In 2015, full-time employed bachelor’s degree holders earned 67 percent more than high school graduates without a degree.
  • Degree holders fare better in the job market. The 2015 unemployment rate for 25- to 34-year olds was just above 2 percent for bachelor’s degree holders, compared to more than 8 percent for those who only had a high school diploma.
  • Employees with a degree are more likely to receive retirement benefits. In 2015, 52 percent of private sector, full-time workers with a degree were offered retirement benefits, compared to only 43 percent of the same without a degree.
  • More degree holders have employer-provided health insurance.In 2015, 38 percent of bachelor’s degree holders had employer-provided health insurance, while only 26 percent of those with just a high school education did.
  • Poverty is more common among non-degree holders. According to the U.S. Census Bureau, 2015 saw more than 12 percent of those 25 and older without a degree in poverty, compared to just above 4 percent of bachelor’s degree holders.

All that said, is college worth it? Apparently so — even with the debt involved. The report goes on to say the average person who graduates in four years will earn enough to compensate for the cost of college by the time they turn 34. And even those who went to college but didn’t get a degree will still, on average, exceed the earnings of a high school graduate by the time they’re 35.

According to the report, “the longer college graduates remain in the workforce, the greater the payoff to their investment in higher education.” In other words, if the thought of college and debt are completely overwhelming to you now, you can still look forward to a more positive future because of these things — if you handle them thoughtfully.

The article 4 Essential Steps to Decide if College is Worth it for You originally appeared on studentloanhero.com.

Do You Owe Taxes on Your College Scholarship?

Posted on by Shannon Insler

There’s nothing like your first-ever paycheck to teach you about the reality of taxes. And as we get older, the many ways our money goes to the government become even more apparent.

But what about college scholarships? Surely the money you received to pay for your education can’t be taxed, right? The truth is, it could be.

To find out if this could happen to you, check out the information below and see which rules apply to your college awards and whether your scholarships are taxable income.

Are scholarships taxable? It depends

So, are scholarships taxable income? The answer lies in what type of scholarship you have. Below are the tax implications for college scholarships, as explained by the IRS.

Scholarships covering tuition at an eligible educational institution: not taxable

According to the IRS, an “eligible educational institution” is defined as follows:

  • The main purpose is formal instruction.
  • It regularly maintains a faculty and curriculum.
  • It normally has an enrolled student base where it performs instruction.

Additionally, you must be a candidate for a degree at such an institution. That means your school has to offer the credits necessary to get that degree. That said, schools offering a training program for a “recognized occupation” can also qualify for tax-free scholarships, so it’s best to check with the school in question if you think you fall into this category.

If your school fits this description, then your tuition scholarship isn’t taxable. But the funds need to meet a few other criteria.

If you use your scholarship for expenses other than tuition, such as room and board, it might be taxable. Likewise for payment for services you agree to do for the scholarship, such as teaching or conducting research.

Scholarships covering non-eligible educational institutions: taxable

If you’re thinking of using scholarship money to take classes for fun, you might want to reconsider if you don’t want to pay taxes on your college scholarship.

According to the IRS, “a scholarship or fellowship grant is tax-free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.”

If not, you’ll have to include your scholarship money on your taxes as income.

Scholarship funds that exceed qualified education expenses: taxable

Room and board can be a pricey part of the college experience, so it might come as a surprise that scholarship or grant funds used for that purpose could be taxable. The same goes for any funds that exceed the cost of your tuition.

Scholarships and grants can have parts that aren’t taxable and parts that are. That’s why you need to know about “qualified education expenses.”

Qualified education expenses include the following:

  • Tuition
  • Fees
  • Course-related required expenses, such as books and supplies

Expenses that aren’t qualified seem to be whatever happens outside the classroom, including room and board and travel. Scholarship funds used for those expenses would be taxable.

Scholarships covering payment for your services: taxable

There are times when a scholarship or grant comes with a stipulation requiring you to work for it — by teaching or conducting research, for example.

In those cases, you’ll most likely have to treat payment for those services as taxable income.

But there are exceptions to this rule.

If your services are being paid for by the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program, then you’re not required to treat that payment as taxable income. The same goes for services paid for in work-learning-service programs, as defined in Section 448(e) of the Higher Education Act of 1965.

Veterans benefits: not taxable

If you’re a veteran, the IRS doesn’t consider funds you get for education or training to be taxable income. That said, the IRS does caution you to be aware of the tax implications of any other grants or scholarships you receive.

You can find out more about education benefits for military members, including student loan forgiveness and repayment programs, via the U.S. Department of Veterans Affairs.

Other scholarships and grants: it depends

What about the other ways you might receive funds for your education? Consider the following:

  • Athletic scholarships
  • Fulbright scholarships
  • Need-based education grants

According to the IRS, all of the above “are tax-free to the extent used for qualified education expenses during the period for which a grant is awarded.”

Are your college scholarships taxable? Here’s what to do

If any or all of your scholarships are taxable, the first thing to do is find out how much of the amount is taxable. You can do so with the help of this worksheet from the IRS.

You can find instructions on how to report the taxable amount on your taxes here. The process differs depending on which tax form you use.

Even if your college scholarships are taxable, avoiding debt is key

If you just found out that your college scholarship could be taxable, you might be feeling a bit frustrated right now. After all, that money is supposed to help you with school, not cost you more money.

There’s good news, however. If you do your taxes properly, it might not cost you much. Here’s an example scenario:

  • You find out that $15,000 of your annual college scholarship is taxable.
  • You work part time and earn $3,000 per year.
  • Add your taxable scholarship money to your annual income, and you have $18,000 of income to report.
  • If you file as a single person in your tax bracket (not that of your parents), this number puts you at a 10 percent tax rate.
  • You’ll owe $1,800 in taxes this year.

Keep in mind that although you can pay these taxes in your own bracket, your parents still can claim you as a dependent (as long as you don’t claim any tax exemptions).

Although $1,800 might sound like a lot, even if you owe that much every year and graduate in four years, then you have to pay only $7,200 in taxes on your scholarship money. Compare that to the average student loan debt, which was $37,172 for the class of 2016.

What’s more, you can sign up for a payment plan on your taxes if you need to — and the interest rates on an IRS payment plan likely won’t be nearly as high as student loan interest rates can be.

In the end, if you take on as little student loan debt as possible, you’ll get a much fresher start after college.

The article Do You Owe Taxes on Your College Scholarship? originally appeared on studentloanhero.

Image by Cathy Yeulet via 123RF Copyright: <a href=’https://www.123rf.com/profile_stockbroker’>stockbroker / 123RF Stock Photo</a>

6 Ways to Manage Money After Your Epic Budgeting Fail

Posted on by Shannon Insler

Do you ever completely screw up your budget? You have a few days or weeks when you manage money perfectly and then all of a sudden you just massively blow it out of the water?

This happens to everyone at least once. Even the most perfect of budgeters have a moment where they flat-out don’t manage money well.

And the aftermath is the worst part. Especially since the emotional repercussions of a blown budget can create an uphill climb.

Luckily, a blown budget isn’t the end of the world. These tips will help you manage money like a pro, even when the circumstances are not what you intended.

3 ways to manage money after a budgeting mishap

1. Return it if you regret it

If you regret the purchase and are able to return it, do it. This is the easiest way to erase the thing you now believe to be a mistake.

Be careful. Returning it in person means you have to go back to the scene of the crime. And stepping foot in the store again could lead to more unplanned purchases.

Even worse, if you only get a store credit in return, you might feel obligated to immediately use the credit. In that case, you might be better off keeping what you bought.

Also, keep in mind that buying, regretting, and returning can become a vicious cycle. Be careful not to view returning things all the time as a real solution to the problem.

2. “Borrow” from other budgeting categories to come out even

If you’re sticking with whatever you spent the money on – or if it’s not a thing that can be returned (such as a dinner out) – “borrow” from another area of your budget. Then you can come out even at the end of the month.

For example, say you overspent on groceries but underspent on entertainment. Remove the difference from your entertainment budget to break even on the overall budget.

You can do this literally if you’re on the envelope budgeting system. Or you can make these adjustments on whatever app, document, or spreadsheet you use to manage your money.

Don’t have any tools to manage your money? Remember: you make what you measure. Start tracking your spending now.

Borrowing from other categories is a great way to find flexibility in how you manage money. However, it can become a crutch if you’re not careful. If you find yourself doing this every month consecutively, re-do your spending plan.

3. Go on a no-spend week to get ahead

If you don’t have any flexibility in your budget to borrow from other areas, create it. The best way to do that is to go on a no-spend week. This can help you break even or can be used in addition to the tip above to get ahead.

Here’s how it works: If you have a certain amount of money budgeted for coffee or lunches out, then forego both for one week and make your coffee and lunch at home. Or, if you had money planned out for a night with friends, turn it into a night in.

Seven days of not spending a dime, even when it’s money you had budgeted for spending, can make up for money management mishaps.

You might even find that you enjoy your no-spend week and make it a reoccurring event. Some people do this once a month or quarter for practice (and the quick and easy boost to their savings).

Once you’ve stopped the bleeding, it’s time to dig deep

Once you’ve used these quick fix strategies to get your budget under control, it’s time to dig deep to find out why it happened.

You may not be able to stop the past, but you can learn from it. And even though everyone has a budgeting slip up occasionally, everyone does it for different reasons. Discovering your reason is the key to managing your money effectively.

It could be that you were using retail therapy on a bad day, that you rebelled against a too-restrictive budget, or that you simply lost track of your spending for the month.

Whatever it is, once you understand why, it’s a lot easier to prevent it from happening again. Here are a few additional strategies to help with managing your money:

1. Build an emergency fund

First things first: any time your budget is feeling the squeeze, build or buff up your emergency fund. An emergency fund is important for preventing turning to credit during an unexpected event.

There are many opinions on how much money to have in an emergency fund, but a good rule of thumb is saving three months to one year of living expenses. Since this can take a long time, the important thing is to focus on slowly and sustainably growing this fund.

And if you need a little extra support, go to the America Saves accountability pledge. You can even sign up for text message tips to help.

2. Create a “splurge” budgeting category

Since an emergency fund isn’t supposed to be used unless absolutely necessary, you could also try creating a “splurge” budgeting category. This category creates a little room for the occasional splurge.

With a splurge budget, you don’t have to feel restricted by your spending plan. Instead, you can see it as the thing that keeps you on track with the occasional pat on the back.

You can even partake in National Splurge Day. A little reward can go a long way in managing your money sustainably.

3. Discover the best savings strategy for your personality

One thing you’ve probably noticed is these tips require saving money. It goes without saying this is easier said than done.

So how can you stay motivated to save money? Hack your personality.

U.S. News & World Report illustrates several personalities and ways to save more based on each one. This includes the goal-setter, the gambler, the nervous Nellie or Norman, and the lazy saver. So how does U.S. News & World Report say each one can save more?

  • The goal-setter can create different savings accounts for different topics.
  • The gambler can fulfill their need for risk by setting aside small amounts of money (that aren’t needed) to play with.
  • The nervous saver can seek out high-yield savings that might make them feel a bit safer.
  • For the lazy saver, it’s all about automation.

Customize your money management system

The moral of the story? We’re all different. Therefore, your money management should be customized to your needs and your personality.

Once you do that, you’ll be able to handle a blown budget and create a more effective money management system moving forward.

The article 6 Ways to Manage Money After Your Epic Budgeting Fail originally appeared on studentloanhero.com.