Monmouth’s Financial Planning Club welcomed guest speaker Heather Vincent, Campus Program Manager for Wells Fargo, to discuss how students should apply for and use credit on Wednesday, Feb 9. While this was a club-sponsored event, the online forum was open to all University students.
As many University students are faced with the option of taking out loans to cover tuition costs, the meeting was specifically tailored to prospective students who are currently or will soon be paying their loans. Vincent introduced the meeting’s agenda, “I want this meeting to apply to the average college student and how he/she can responsibly use credit and pay debts.” Vincent first explained that credit is established through regular payments, like when a person makes monthly student loan payments. “Other ways to build credit include gasoline and retail credit cards, which allow for students to build credit on top of buying what is necessary,” she said.
A new concept to many of those in attendance was the debt-to-income (DTI) ratio. “A DTI is a person’s monthly debt payments divided by pretax income. A low DTI, which is 35 percent and under, is favorable for applying for new credit,” described Vincent. Another important theory to understand in practicing financial responsibility are the Five Cs of Credit. “This includes credit history, capacity, collateral, capital, and conditions. Each serves the financial institution in making sure it gets repaid and that it only awards credit to responsible consumers,” Vincent stated. Most importantly, however, is one’s payment history. According to Vincent, “35 percent of our credit score is based on our payment history.”
Vincent noted that paying one’s bills, opening a checking account, and building a savings are all ways of applying the aforementioned theories of credit. “It’s generally a good idea to keep our balances well below the credit limit,” Vincent said, as credit scores can decrease when taking on too much debt, such as high balances. “If you’re working to rebuild your credit, make sure you set a budget,” Vincent added. A budget is crucial for using credit responsibly as it can allow one to make those consistent payments and generate a good credit history.
After Vincent’s lecture, a student in the audience had asked, “What are secured credit cards? I’ve been looking for a credit card and don’t understand what these are.” Vincent explained, “They are essentially cards where you set your own balance.” Secured cards are found at most institutions and allow for upgrades to regular, unsecured cards. Most begin with a minimum deposit. They are great for beginners looking to build credit and I strongly recommend searching for any student offers.” Vincent reminded students that “Building credit is an ongoing process. There are plenty of ways to create a good score, but even more to repair a low score. Credit will always have its ups and downs.”
Vincent’s sentiments were shared with Economics, Finance, and Real Estate Professor Richard Roberts, MBA. Nonetheless, Roberts emphasized reasons why practicing the good credit practices mentioned by Vincent are so important. “The quality of your credit history will become increasingly important post-graduation. For example, many employers review a potential hire’s credit before extending an offer of employment. Additionally, your credit will also be reviewed as part of acquiring a home loan or lease,” offered Roberts. Roberts ended, “Ultimately, your credit can strongly impact a person’s major life events and plans.”