Tigers Credit Union is honored that Nerdwallet has asked us to express a few words as you embark on this new chapter in your life. As you have probably heard, there is a weathered road currently presented to graduates these days. But this is not a speech about the economy and poor job markets. As a financial institution run by our members, it is our duty and privilege to provide you the building blocks to financial success. Part of that shared knowledge means preparing you for the obstacles you will potentially face and give you the tools to surpass them.
One of the most valuable things we can share is the importance of credit and how that pesky score can affect your life. Credit scores are basically your financial report card. Only now your financial habits are graded from 300-850. Debt is easy to acquire these days, but a good credit score is critical if you ever plan to buy a car or get a mortgage at all, let alone at the best possible rates. The following three stories are how credit has affected someone’s life in one way or another.
The first story is about not being afraid of credit:
Sarah’s parents had problems with credit cards, and raised her to believe that all debt was bad. Consequently, when she went to rent an apartment after college, her name couldn’t be on the lease because she had no credit history. Small steps, such as signing up for a credit card and paying more than the minimum, on-time, has allowed Sarah to start building credit, and she was even eventually able to purchase a car. Debt is bad when you let it accumulate, but using a credit card and paying off the balance every month is a smart way to build good credit, so when it comes time to rent or own, you won’t be at the mercy of your roommates.
Our second story is about trimming the fat:
When Patrick lost his job and took another at half the salary, he started living off credit cards. Between paying for all the household utilities, food, phones and car payments, he racked up $32,000 across 6 cards in just 2 years! When creditors started calling the house, he decided it was time to get his life in order.
Patrick came into the credit union for advice and was able to create a budget that included setting up automatic payments and getting rid of nonessential items like cable. He was able to refinance his auto loan with cash out to pay off a high interest credit card balance while simultaneously getting a signature loan for another high interest credit card. Together, he was saving about $600 a month and in six months, he was able to pay off another credit card’s balance with a lower interest loan.
Knowing when to ask for help is what Patrick attributes to paying off his debt. With the money he is retaining from not paying down credit cards, he is able to focus on building his savings for retirement.
Our final story is about overcoming a low score:
Tracy and Dan were in their late 20s with great paying jobs and perfect credit. Due to cutbacks, Dan lost his job and was out of work for a year. With their income drastically dropping they fell behind on all of their bills and were not always able to pay everything on time. They fell behind on their mortgage payment, car payment, and credit cards causing their score to go from a 730 to a 580. After almost 13 months of not working, Dan was able to find a job making $95,000 a year. However, when they needed to replace their second car, they had a hard time getting approved for a loan. Even with their combined income, they were still considered a “credit risk” due to that low score.
Finally, they were able to work out a $20,000 loan for a new vehicle, but at an interest rate of 14.79%. Now that Dan is working again and can make his monthly payments, his score will increase and they will save more money for the next time they apply for a loan. When they get back up to a score like 730, they could potentially qualify for rates as low as 3.29%. But Tracy says that’s not the only lesson they learned. Together, they started a savings fund that now houses 10% of their paychecks for emergencies, stating: “We’ll never let our scores suffer again!”
Just because classes are over does not mean that the learning ends. It might sound corny, but you have the world at your fingertips, and it’s not just because you’re graduating and everything is shiny and new. It is because you are a part of a generation that has the world of information literally at your fingertips. Resources like the Tigers blog and NerdWallet work to “empower consumers to make better decisions about their personal finances” and resources like that are endless. So use them.
In closing, people make mistakes. Ask for help. Keep learning.
Congratulations to the graduating class.
Tigers Credit Union
This speech was written as part of our submission to NerdWallet’s Gen Y Credit Union Contest.