Class of 2014: Here Are 4 Tips for Acing Real-World Finances

Finance

Congratulations! You have just become a college graduate. This is exciting -- and maybe scary -- time. You're probably looking to start a career, earn your first significant paycheck, take your serious relationship to the next level, find a new place to live, and accomplish a lot more fun stuff.

But you might also be staring down the barrel of a lot of heavy financial issues: paying down student loan debt, saving up for those big life changes, figuring out how to manage your own finances, and determining how soon you'll need to start thinking about retirement. (Spoiler alert: now.)

Don't worry. I'm going to give you four tips to financial success

that will make it all a lot simpler.

1. These Are Your Financial Priorities

You have a lot going on right now. The best thing to do is to take a deep breath, relax, and plan. Start by determining your financial priorities. Most people will want to focus on the following (in order of importance):

• Building up an emergency savings fund.
• Paying down your highest-interest-rate debt.
• Repaying your student loans.
• Balancing debt repayment with saving for retirement.

Wait, we're already talking about retirement? You bet.

2. Save What You Can for Retirement and Future Needs

If you're earning an income from a full-time job, it's time to start contributing to your retirement accounts and investing some of your savings. It's never too early to start making progress in this area because time is your biggest advantage as an investor.

The earlier you start, the more your nest egg will eventually be worth -- even if you don't feel like you're saving much. The secret is compound growth -- something so potent that when people claim Einstein called it one of the most powerful forces in the universe, folks believe it. 

Even if it's just $50 or $100 a month right now, contribute what you can to your retirement and major savings accounts that will help you cover future needs and expenses. And then don't touch it.

Make this easier on yourself by taking advantage of "free money" opportunities where you can. Your company benefits package is an excellent place to start.

3. Live Frugally to Aggressively Pay Down Debt

Learn this lesson as soon as possible: Material stuff doesn't make you any more of a person. Possessions are unlikely to make you genuinely happy and fulfilled. So stop wasting your money by trying to accumulate things, things, and even more things.

Instead, make sure your spending is in line with your priorities and your values. You worked hard for your money, so be mindful of what you purchase with it. Embrace living frugally -- which doesn't mean living cheap.
Being frugal means you're more resourceful and less wasteful. It means you're not pressured into buying things you don't need -- or maybe don't even want -- by your peers, family members, or a society that encourages mass consumerism.

Once you've realized you don't have to spend every cent you make on stuff that you don't really value, you should have money to allocate toward your debt. Get aggressive with your loan or credit card balance payments.

The sooner these big debts are gone, the sooner you'll be more financially stable and secure. The longer you hang on to debt, the longer you'll be unable to advance other financial goals, and the more money you'll be paying in interest.

4. Establish a Side Hustle

Feel like there's not enough money to go around each month to cover all your financial goals, expenses, and wants? You do have the power to solve this problem. It's called a side hustle. Any kind of part-time work you can do on the side will accelerate your progress as you repay debt, save for the future, and acquire the money you need to make big things happen in your newly independent, real-world adult life.

Investment Advice for New College Graduates

Photo Credit: jannoon028
Congratulations, you are a newly minted college graduate! Now that college is over and you are being pushed into the real world, it is time to think about your future. In order to do so, you need to think about investing. I know, investing can be confusing and therefore overwhelming at times. There is a lot of information out there and much of it contradicts itself. Below is a guide to helping you manage the investing portion of your life.

Keep Living Like You’re In College

You’ve probably heard this before, but I need to mention it before we get started. I know that the first paycheck you get will feel great. It did to me too. You’ll start thinking about all of the things you can buy with it. I did too. But you are better off living like a college student for as long as you can and saving all of the money you can.

You don’t need a new car. If your car is in good shape, keep driving it. A car is not a status symbol, it is transportation. I drove the car I had in college for about five years after I graduated. All of my friends were making $400 monthly payments on a car. I was saving $400 every month. Fast forward to 15 years after college and many of my friends are struggling with their finances, complaining about not having enough. Me on the other hand, I have enough money saved that if I were to lose my job, I could survive for a few years without worry.

This isn’t to toot my own horn. It’s to show you that the habits you start with after college will continue for your life. If you start spending everything you earn, odds are you always will and won’t get ahead. You will always be struggling with money. You don’t want that and I don’t want that for you either.

Contribute To Your 401(k)

Now that you are living below your means, you will have excess money to save. The first thing you should do is start investing in your 401(k) plan at work. Start with 10% of your salary. If you do this from the beginning, you will learn to live on a smaller paycheck from the start. Trust me, you won’t even miss the money. If you are fortunate enough to be earning a high salary, feel free to invest more than 10%.

From there, make it a point to increase your contribution each year by at least 1%. You won’t notice the lower paycheck and you will be able to take advantage of your money compounding upon itself.

As for investments, we’ll get to that a little further down.

Start an Emergency Fund

Your next step is to create an emergency fund. Your emergency fund should cover your monthly expenses for 8-10 months. Many will tell you to have 3-6 months saved in an emergency fund, but I am a little more conservative and like to have more money saved up in cash.

Create a Taxable Account (or Roth IRA if eligible)

Once you are saving for retirement through your employer’s 401(k) plan and you have an emergency fund, you can start investing in a taxable account. Don’t get too scared about the terminology. A taxable account is simply a non-retirement account. I suggest you start one because, with a 401(k) and a Traditional IRA, you can’t access that money until you are 59 ½ years old or pay a penalty. With a taxable account, you can access that money any time, without penalty.

One caveat to this is a Roth IRA. You can invest in a Roth IRA and withdraw any of your contributions at any time, without penalty. If you withdraw any earnings on your money before you are 59 ½, you will have to pay a penalty. And yes, you can have a 401k and an IRA at the same time.

Regardless if you are investing this money in a Roth IRA or a taxable account, you will want to start saving money here too.

Where to Invest

The key to being a successful investor is:

• Have a Plan
• Stick to the Plan
• Find Low-Cost Investments

Have A Plan

To start, you need to have a plan. This doesn’t have to be super detailed, you just have to know what you want your money for. The more details you can provide the better. For example, maybe you want $1,000,000 by age 65 so you can retire to Florida. That is a perfect start to your plan and provides some detail.

Next, you have to figure out how you are going to get there. You need to know how comfortable you are with investing in the market and determine your asset allocation. One rule of thumb is to take 120 minus your age. This is the percent you should have in bonds. So, if you are 25, you should have most of your money in stocks.

But, you might not be comfortable with this amount of risk. If you want less risk, then you need to increase the number of bonds you own. Understand that you will need to own stock if you ever plan to retire. Unfortunately, you won’t be able to earn a high enough return from just bonds alone to meet your retirement goals.

Stick to the Plan

Let’s say you are going with 90% of your money in stocks and 10% in bonds. The key now is to stick to this allocation, regardless of what the market is doing. You are investing for the long-term. What happens next Tuesday is irrelevant to your situation since you are going to be invested for another 40 years.

Understand that the stock market has cycles. It will go up and it will go down. That is the way it works. You are going to hear a lot of “noise” from the news and magazines. Remember that the goal is to get you emotionally involved. Once you act emotionally, you are bound to lose money in the stock market.

Wall Street earns money when you trade. The more you trade, the more the machine makes. But ignoring the noise allows you to keep emotions in check and this will allow you to be a better investor. The sooner you understand this, the better off you will be.

Find Low-Cost Investments

While you won’t see a bill come in the mail for fees that you pay into the mutual funds you own, you do pay fees. They are just hidden in the return of the fund. You want to invest in funds that have the lowest expense ratio possible. You should never be paying more than 1% in expenses.

A 1% expense ratio is equivalent to a $10 fee for every $1,000 you have invested. This may not sound like much now, but when you have hundreds of thousands of dollars invested in the stock market, the fee quickly adds up. It’s your money, don’t give it up so easily.

Final Thoughts

As I mentioned earlier, the concept of investing sounds intimidating with so much information out there. But it really isn’t that complicated at all. You just have to be smart about a few things. If you can make it a point to keep your expenses low so that you have more money to invest, you are going to be in good financial shape. When you begin to invest, pick low-cost investments, and stay invested. Remember that the market will drop and will be volatile over the short-term, but the long-term trend is up. If you can ignore this noise, you will be a successful investor.

Source: Investment Advice for New College Graduates

5 Money Lessons I Learned From Watching Wheel of Fortune

"Wheel of Fortune" is one of America's longest-running game shows, giving away more than $200 million in cash and prizes since its premiere in 1975. But behind all that wheel spinning, hand-wringing, and gown-gazing, the show has something more to offer astute viewers. If the game is financial security and the wheel is just a series of chances to make or lose money, then watching Wheel of Fortune can teach us a few fundamental financial lessons.

1. Pay Attention

In every game, there seems to be at least one "Wheel of Fortune" player who isn't quite paying attention. I can't blame them. Under those lights, in front of that crowd, and in that hothouse of pressure, I'd be lucky just to stay vertical. Players repeat letters that have already been called, solve puzzles partially, and give other players an advantage, or mispronounce words so badly that their answer can't be accepted. These are cringe-worthy moments that make me wonder about the level of self-flagellation that happens once the cameras are off.

Not paying attention to our personal finances is just as risky. Being on financial autopilot costs money

. We don't adjust our savings rate as our income increases; we put off revising our withholding tax and continue to think that a big refund check at the end of the year is actually a good thing. Or we don't get around to canceling that unused gym membership and end up tithing $65.00 a month to a very unworthy cause.

When it comes to solving our own financial puzzles, not paying attention is a luxury most of us can't afford.

2. Think Creatively

If there's one skill that serves contestants well on "Wheel of Fortune," it's creative thinking. Solving those puzzles effectively means not letting your mind get too attached to a single potential outcome. For example, the partial clue, "h_ _ _es" could turn out to be horses, houses, or hoaxes. Finding the right solution means cycling through options quickly and creatively and trying to see how different possibilities might fit together.

The same is true of winning the financial game. Successful savers need to constantly source new avenues of income, savings, and investing. Getting locked into one path to the exclusion of all others limits potential and return. (See also: How Cash Flow Allocation Helps You Retire)

3. Seize the Moment

Smart players also seize rare moments, and it's exciting to see solid strategy pay off. For readers unfamiliar with the game, contestants are presented with one Prize Puzzle each show. In addition to the regular cash payout, the winner of the Prize Puzzle gets a deluxe vacation package. I can't tell you how many times I've seen players keep spinning that wheel even when it's obvious they've worked out the correct answer. All too often, these relentless players land on a "bankrupt" wedge and their competition swoops in to collect the trip to Nassau or Hawaii.

In our financial lives, the same thing can happen. We keep spinning that figurative wheel well past our moment to lock in a better mortgage rate, transfer our credit card balances to zero-interest introductory rate, or shake hands and finalize a smokin' bargain on a used car. I'm not advocating thoughtless action, but there are moments when calculated-but-quick action wins the day.

4. Don't Get Greedy

Sure, every game show is a gamble — that's the whole idea. But it's curious to watch players keep spinning the wheel when there are only one or two (quite obvious) letters remaining before the entire answer is spelt out before them. The motivation is obvious: collect more money. The risk is just is clear: get stung by that looming bankrupt wedge. Call me overly cautious, but with a comfortable lead and an answer in my head, that spinning wheel would come to a screeching halt. Vanna might even have time for a quick coffee break.

Same with my financial life, taking an unnecessary risk just to feed the idea of "more" seems counterproductive. I know it sometimes takes big risks to establish a big lead, but the potential pitfalls can be profound.

5. Stay in the Game

Even when it appears to make no financial sense at all, savvy "Wheel" contestants buy vowels. Buying vowels keep them in the game, keeps their mind churning for a solution, and keeps their competitors at bay (at least momentarily).

The financial rule behind this approach is simple: Sometimes you have to spend money to make money. Stretching tight budgets, sacrificing certain wants and needs, and forgoing a few of today's comforts can all help fund investments in our tomorrows — and that's an essential piece of any sound money management plan. Saving and investing keeps us in the game even when it's hard to see the big picture.

Bonus Round

At the risk of stretching this analogy too far, let's wrap things up by talking about the bonus round. On "Wheel of Fortune," the bonus round is the winning player's last chance to walk away with an even bigger payout. The player is given 10 seconds to solve a single puzzle; the minimum cash prize is $30,000, but it can go as high as $1 million for lucky players who've managed to score the requisite million-dollar wedge. (See also: Do You Know Where Your Net Worth Is?)

I call this part of the show the "financial independence" segment, closely mirroring retirement. Players who've managed to make it this far have done several things right and now simply have to up their game slightly to sail through to the end. Of course, a little luck doesn't hurt either. I guess life really does mirror art…or game shows (or both).

Are you a Wheel Watcher? If you could characterize your savings strategy by a game show, what show would it be?

Source:  5 Money Lessons I Learned From Watching Wheel of Fortune

A New College Student’s Guide to Saving Money on Campus

It wasn’t all that long ago that I was enjoying that special summer between high school and college. I had graduated from high school, of course, but I was also the first person in my family to actually attend college. It was exciting and a bit frightening and almost overwhelming.

Looking back now on my journal entries from that time and recalling the choices I made, I recognize how completely inefficient I was in those first years in school. I made a ton of little financial

mistakes that stretched my already thin finances even thinner – and eventually stretched them to the breaking point.

If I were to sit down with my eighteen-year-old self again and offer some pointers on how to maximize every dime on campus while also having a lot of fun, here’s what I would suggest.

Contact your roommate now
Many of you have probably already done this. If you haven’t, find your roommate on Facebook now. Drop that person a friend request.

What you’ll want to find out from that person is what shareable items to bring. Items like a television, a microwave, and a mini-fridge are items that you can share in a dorm room without any real problems. Plus, doing so will save one (or both) of you some cash if you don’t already have the items. If you do, now’s your chance to return the item.

Start looking into campus organizations, particularly those related to your major and interests
I would strive to make a list of at least five organizations that you might be interested in joining. Most organizations on campus will have meetings or some sort of activity during the first week or so of classes, which will give you an opportunity to find out more about them.

If I were doing this again, I’d make a list of ten of them and try to stick with at least five of them.

Why do this? There are several reasons why campus organizations not only help you to save money but can help you to earn money in the long run.

For starters, it gives you a great chance to meet and hang out with other people who are genuinely into the same things you are. If the topic of the group interests you, then you know that other people in the group are going to be interested, too, making it easy to get to know them.

Second, they’re great resume boosters, particularly if you get involved in leadership in the club. I am firmly convinced that my participation in and leadership in a couple of organizations late in my college career helped me to get my first post-college job.

Third, they’re often huge money savers for poor students, as most clubs have a budget of some kind that’s often used on food. Many organizations have movie nights and other gatherings where the club’s budget pays for a meal.

The more organizations you try out, the more free meals you’ll get, and the more likely you are to find organizations that really click with you.

Watch your university’s calendar for even more entertainment

College

campuses are loaded with free movie nights, public speeches, free concerts, and countless other things going on virtually every day of the academic year. Even if you find 80% of it uninteresting, the other 20% will pack your schedule full of things to do.

Dive into those activities. Revel in them. This is the time in your life to tap into those things. Take full advantage of it.

Don’t sign up for a credit card
There will be lots of people on campus trying to get you to sign up for a credit card. They’ll have all sorts of little enticements – free t-shirts, tickets to some event, and so on. 

Don’t. If you’re going to sign up for a credit card – and it’s probably not a good idea, to begin with – it’s a terrible idea to do so at one of those booths. Instead, research options for student credit cards or cashback rewards cards. And if you do open a credit card, always pay the balance in full each month.

Your student loans are already establishing a credit history for you. Credit cards really provide little benefit for you other than getting you into a debt situation you don’t want to be in on graduation day.

Detach yourself from easy spending
This goes hand-in-hand with “no credit card.”

It’s incredibly important for college students to minimize the routes they have in their life for spending money. For most college students, those routes start with their electronic devices.

If you have a credit card, delete those numbers from your online accounts. Yes, it makes it harder to make a purchase. That’s the point.

Delete bookmarks you might have for online shopping sites. Unsubscribe from any emails that encourage you to buy things so that you’re not seeing them. Don’t sign up for anymore and, if you can’t subscribe, filter those emails straight to spam.

The fewer temptations you have and the harder the route is from the temptation to spend, the better off you’ll be.

Find a job connected to your major and shine with it
If you’re serious about really making your mark on campus, try to find a job connected with the academic department of your major. These jobs typically pay minimum wage or sometimes less (if they’re work-study jobs), but they offer a great chance to interact with professors and other professionals in your department. That’s where the value is.

If you can get such a job, use it as much as you can to help out professors and others in your department. Look for every chance to interact with and serve in a positive way. Some won’t notice, but quite a few wills.

I did this myself and it led to a sequence of jobs that not only put cash in my pocket, they also resulted in a lot of free meals, a free computer, at least two free textbooks, and a very nice resume.

Stay in
It’s tempting to want to go out, but every time you set foot in a business establishment, you’re pretty much begging to spend money. You’re far better off hanging out at someone’s dorm room or apartment.

Instead of eating out, make your own simple meals, or make meals together with friends. If you simply must order food, even that’s usually cheaper than going to a restaurant.

If you’re going to drink, it’s far cheaper (and less likely to end disastrously) if you’re drinking in someone’s apartment rather than out and about. You’re in a relatively safer environment and it’s far less expensive.

The things you can do while staying in are far cheaper, too, and they’re still quite fun. Have a movie night. Turn on some music. Play a board game or a video game. If you can’t come up with something to do that’s fun, you’re not trying very hard.

College is perhaps the best time in your life to figure out who you are and what you want to be doing.

 That process doesn’t have to involve spending money – in fact, outside of the tuition and other direct fees, most aspects of college make it as easy as possible to do that self-discovery without spending cash. Take advantage of it

Setting Up a Weekly Money Routine

As I’ve mentioned before, I have a weekly routine where I set aside roughly two hours on the weekend to evaluate my to-do lists, take care of some weekly tasks that I’ve overlooked, and do some thinking about my long-term goals and what I’m doing right now to reach them (or not).

Naturally, personal finance is a significant part of that routine. There are several things that I do each week to make sure that our finances continue to flow smoothly.

Here are the personal finance-related tasks that make up my weekly money routine.

Pay all bills We pay all of our bills on a weekly basis. If a bill has a due date in the coming week, we pay it. We also fully pay off all credit card bills each week.

For the bills that aren’t credit cards, we choose to wait until the due date is closer in order to keep the cash in our account. I usually just schedule them to be paid the day before they’re due using online bill pay.

For the credit card bills, I prefer to always keep the balance as close to zero as possible so that a big balance doesn’t ever build up. Plus, doing this ensures that I always have a very strong debt-to-credit ratio that virtually always remains below 10%, which is where I want it to be for my credit score.

Categorize expenses Over the past few months, I’ve taken to using You Need a Budget to manage our family’s cash flow. I usually record all of our spendings at once at the end of the week, which involves categorizing all of the different expenses.

I simply look at each thing we spent money on this week and assign it to the appropriate matching category. It’s really easy and just takes a few minutes.

Doing this enables me to really look at our expenses and ask hard questions about how we’re spending money. How exactly do I do that?

Review our spending plan After I’ve recorded expenses for the week, I look at our spending plan and see how those expenses match up with what we should be spending. Are our non-essential expenses too high? Are we spending too much on unnecessary things? Are we saving for everything we should be saving for?

This also takes just a few minutes, but if I discover a problem, I spend some time digging into the reason behind that problem, which can end up taking a fair amount of time.

Look for possible deductions and save them Did we spend any money on anything that’s potentially deductible this week? If we did, I record it in a separate spreadsheet and save the receipt in a manila envelope.

At the end of the year, this spreadsheet and manila envelope is a godsend. It makes filing taxes a lot easier, plus it directly saves us money on our income taxes. Taking two minutes once a week to record this stuff can add up to hundreds of dollars in tax bill reductions at the end of the year.

Learn about one new thing For the last several months, I’ve been choosing one topic to learn about or refresh myself on for the coming week. I try to devote five hours throughout the week to learn about this topic.

A significant number of those topics are related to financial issues. One week, I chose to look at Coverdell education accounts (I couldn’t really see why we would use one over a 529, but I was glad to know about them). Another week, I looked at how people do technical analysis of stocks. Another week, I dug into how the Federal Reserve sets interest rates. Another week, I focused on teasing through all of the fine print on a credit card (I expected to find some surprising clauses, but I really didn’t find anything that truly surprised me).

Each week, I learn something new about the world that strengthens my understanding of my own life, whether it’s through a better understanding of a personal finance issue or something else entirely.

A weekly financial routine is a valuable thing to get started in your own life. It doesn’t take too much time, but it’s very useful in terms of keeping your finances in balance over the long haul.

Source: Setting Up a Weekly Money Routine

Why Isn’t Income Part of My Credit Score?

Credit Score

After a series of financial setbacks, Eddie’s income is on the upswing. But that doesn’t seem to be helping his credit scores one bit. He wrote in an email asking why it didn’t:

I bring home $650 a month MORE than when I worked, and my monthly outlay is $700 less, so I have $1,350 more disposable income every month than I had when I had all that debt. Yet I can’t get a freakin’ credit card?

Why doesn’t income affect your credit scores?

“As important as it is to understand what does impact your credit score, it’s important to also know what isn’t included,” says Sarah Davies, Senior Vice President, Analytics for VantageScore Solutions LLC. “Income does not impact your credit score. Other things that do not impact credit scores are race, color, religion, nationality, gender, marital status, age, occupation, title, employer, employment history, where you live, or even your total assets.”

She goes on to explain that “a credit score is designed to determine the likelihood that you may default on a credit account. In other words, just because someone might earn more money than another person does not necessarily make them more or less risky.”

But there’s another explanation for why income isn’t used: it’s not on your credit reports.

Why not? Credit scores are calculated using the information in credit reports, and verifiable information about income isn’t listed there. The major credit reporting agencies rely on data reported by third parties (creditors and public records), not “self-reported” data supplied by consumers. Where would they get accurate income information for every person in their databases?

Employers aren’t going to supply it. Tax records might be a possibility, but since your tax data is confidential, you would first have to agree to allow the IRS to share your data. Going a step further, if taxpayer income was provided to credit reporting agencies, there would have to be a mechanism in place to handle disputes if you believed the income reported was incorrect — and it’s hard to see how the government would want to get involved with that.

How Income Is Used

The bottom line is that income isn’t part of your standard credit score.

While that may bother high earners or those, like Eddie, whose incomes are on the upswing, overall it is probably a good thing. You can be self-employed — or even unemployed — and that doesn’t hurt your scores one bit, provided you can still pay your bills on time. Anyone who works for themselves and has tried to apply for a mortgage in the past couple of years knows how difficult it can be to prove your income to a lender.

That doesn’t mean income is irrelevant. It’s not. In fact, all lenders will ask you what you earn on your application, and they may have a minimum income requirement. Some lenders will accept the number you report as long as it appears reasonable, while others may require you to document what you earn with copies of your paystubs, tax returns, or even by directly contacting your employer to verify your income.

With that number, the lender can calculate a debt-to-income ratio based on the income you have reported. They may even use a custom application score that factors in how much you make. “Lenders, on the other hand, may take income into consideration as they can make more subjective decisions as to whether to loan you money, how much, and under what terms,” Davies points out.

At least one consumer organization, the Consumer Federation of America, says there is a link between credit scores and income. In their report, “The Use of Credit Scores by Auto Insurers: Adverse Impacts on Low- and Moderate-Income Drivers,” they maintain that lower and moderate-income drivers are more likely to have lower credit scores “due to economic circumstances.”

“Income affects your credit, but not your credit score,” explains Steve Ely, president of eCredable.com, a firm that helps consumers establish credit using bills that don’t show up in traditional credit reports. “When lenders make decisions about your creditworthiness, income is always a key consideration. They don’t want to lend money to someone who obviously can’t afford to repay it. Your credit score is a key factor that helps them understand how you’ve behaved in the past (when it comes to meeting your financial obligations), and are likely to behave in the future.”

This means that just because you have a high income you may not have an excellent score, and even with a modest income, your credit score could be stellar. The only way to know is to check your credit scores, which you can do for free at Credit.com.

The True Cost of Bad Credit

Life’s easier if you have good credit, financially speaking. It can be challenging to get to that point, but aiming for great credit is a worthwhile goal, considering how costly it can be to have bad credit.

You could have poor credit for a variety of reasons, and if you look at your credit score and credit reports, you’ll probably be able to figure out why. Perhaps you have trouble making loan payments on time, or your credit card balances add up to more than 30% of your limit — poor credit could also be the result of having a very short credit history. No matter the reason, having bad credit means your history (or lack of history) makes you seem like a risky borrower to a potential lender.

If you have bad credit, you’ll want to work to improve it. Otherwise, you can face some obstacles.

It’s Hard to Get Loans

The lower your credit score, the less likely you are to be approved for loans and credit cards. If you’re approved, your poor credit standing often results in higher interest rates on the loan.

Credit reports and credit scores aren’t the only factors in loan-application decisions, but you want them to be an asset, not a liability. There are hundreds of credit scoring models out there, and you’ll never know which ones your potential lenders will use in their decision-making processes, so it helps to focus on the fundamentals (paying on time, using credit conservatively, etc.).

You Pay More

Having poor credit is costly. Yes, high-interest rates will force you to pay more than someone with great credit who is borrowing the same amount of money, but non-credit industries also consult consumer reports and scores when pricing their products.

For example: When you set up your utilities or get renter’s or car insurance, your credit standing may play a role in determining how much you pay. If you don’t meet certain credit standards of your electricity provider, you may have to pay a deposit when you have services turned on. Utility companies do this because statistically, people with poor credit are more likely to fall behind on or fail to pay bills. By asking for more money upfront, they protect themselves from loss.

Your landlord will probably pull your credit when you apply for an apartment, too, because he or she wants to know if you’re likely to pay the rent on time. Again, you may be required to pay a higher deposit because of poor credit.

Potential employers can also pull your credit reports, though you have to give them permission to do so. Certain states restrict the use of credit reports in the hiring process, so check to see what your state allows.

Even if you’re not planning on taking out loans, you should stay on top of your credit standing by regularly reviewing your credit reports and scores. Failing to check them means you may not find out about errors on your credit report until they’ve adversely affected you, and it’s best to address mistakes before they cause bigger problems. You’re entitled to a free annual credit report from each of the major credit bureaus, and you can get two of your credit scores for free with a Credit.com account.