Beating Broke

Personal Finance from the Broke Perspective

5 Ways a Better Credit Score Leads to Better Finances

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BookkeepingEverybody knows that you want to have the best credit score you can.  Why?  Because the better your credit score, the better the rates you can get on your loans, of course!  But, did you know that there are other reasons to try and improve your credit score?  In fact, here’s five ways that having a better credit score can lead to better finances.

  1. More money.  This is the obvious one.  A better credit score leads to better rates on loans (see above), and better rates lead to less interest paid over the life of the loan.  And less interest paid leads to…  (wait for it) a  better bank balance!
  2. Better rentals.  It’s a sad fact that many landlords are doing credit checks on prospective tenants these days.  They’ve got assets to protect, so it’s a smart move for them, but the fact that there are so many landlords out there getting burned that it’s become necessary is sad.  But, having a good credit score can help make sure you don’t get turned down for that great apartment down by the beach!
  3. Quicker payoff.  This one goes really closely with the first point.  With those lower rates, and lessened interest also comes the ability to pay the loan off quicker.  And, of course, a quicker payoff means a much better financial situation.  Especially if you avoid any new loans afterward.
  4. Any loan you like.  If you must loan money, at least do it smartly.  With the current state of affairs, you can’t just walk in and get a loan that has a pulse as it’s only requirement.  In fact, many banks and credit unions are cutting way back on their sub-prime lending for anything.  (P.S. the term “sub-prime” doesn’t just apply to mortgage loans) If you have poor credit, it’s much more likely, today, that you’ll get turned down for a loan altogether.  Better credit means that if you really need a loan, you probably can have one.
  5. Less fees.  We all hate fees.  Well, all of us except the financial institutions.  A growing number of them are making a growing amount of their revenues from fees.  And many have moved to an account structure that is based off of risk.  And risk is determined by credit score.  A lower credit score could mean an account with higher fees, or with monthly fees that some accounts might not have, while a higher credit score might qualify you for a different account without those fees.

So, you see, having a good credit score can really send your finances in the right direction.  And, having a bad credit score can really send them into the dumps in a hurry too!  Unless you’re very dedicated to the extreme frugaler lifestyle, and never plan on really using money, it still pays to have a good credit score.  It doesn’t take much to build it, and you might be glad you did someday.

photo credit: o5com

Paying Down Student Loans with Smarterbank

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There’s little question that student loans can be one of the more difficult debt burdens that a person can have.  The cost of tuition is rising each year, and the rates seem to be following suit.  Many college graduates are finding themselves with a degree that cost as much as their first house is likely to.  It goes to reason, then, that finding any means available to help pay that debt off is probably a good idea.

What is Smarterbank?

I was recently introduced to a product offering called Smarterbank.  It’s an online checking account that’s run by The Bancorp Bank.  It’s fully FDIC insured to $250,000 and, for most purposes, operates just like any other online checking account.  Much like some other online banks, Smarterbank has some perks attached to their accounts.

In the case of Smarterbank, they give a “cashback” that goes directly to your student loans.  For purchases under $100, they apply .5% of the purchase to your Smarterbucks account.  For purchases over $100, the first $100 gets you the same .5%, and everything over $100 gets you 1%.

Smarterbank Fees

One of the nice perks of Smarterbank is that it’s a relatively fee free account.  There’s a monthly “inactivity” fee if you don’t use the account at least once in a month of $4.50, otherwise, if you’re a smart user, you’ll never hit a fee.  And, by smart user, I mean you don’t overdraft, or do something else silly.  They’ve got fees that are associated with things like statement research, etc, but those are pretty standard and you’re pretty unlikely to ever use those services.  You also get access to over 40,000 ATMs in the STAR ATM network.

The Smarterbucks Program

As I mentioned above, the “cashback” goes into your Smarterbucks account.  So, you’re probably wondering what the heck that is.  Smarterbucks is a rewards program.  Not unlike programs like Swagbucks, it rewards you for certain actions.  Things like shopping through their portal (“Smarterbucks Marketplace”) earn you cash back that is credited to your account.  You can also ask others to contribute to your account.  That option could be pretty cool to use as an alternative for people to give to you for birthdays, Christmas, or special events.

Once your Smarterbucks account reaches $15, they send a payment for that amount to your student loan.  At first, that might not seem like much, and, really, it isn’t.  But, every little bit helps.  And every $1 you pay off early is $1 that you aren’t accruing interest on for the life of the loan.  And that can add up in a hurry.

Would you switch to an account like Smarterbank for an offer like this?  Is the offer strong enough to make it worth the time?  What other offers have you seen that help with student loan payback?

See all the details on Smarterbank.

Compare Those Credit Card Offers

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Like many mailboxes around the country, mine seems to overflow on occasion with credit card offers.  I’m not sure what it is, if their marketing departments all work on the same cyclical calendar, or if there are certain market indicators that trigger a flood of offers, but whatever it is, they all seem to come all at once.  Normally, they all find their way to the shredder, to then find their way to the trash can.

One of the things that we still do, because we haven’t paid off all of our credit card debt, is to occasionally transfer the balances to take advantage of those same credit card offers.  One of those offers recently expired, and so I had been keeping my eye out for a new offer to make the move.  That offer came in the form of those little convenience checks that the credit card companies are so fond of sharing.  In this particular case, from a card that we’d already paid off, but had left open.  It had two checks in it.  One that offered 0% interest for about 13 months, and the other that offered 1.99% for about 18 months.

Which Credit Card Offer Will Reign Supreme?

Credit Card Offers

There was plenty of balance on the paid off card to take care of the entire balance of the other card.  It was just a matter of writing the check to transfer the balance, and mail it.  But, which one?  Most people, including myself, if making the decision in a quick manner would likely choose the 0% offer and mail it off.  However, it bears a little more analysis than that.  Especially if, like in our case, you don’t think you’ll have the balance paid off at the end of the 13 months.  When the transfer special expires, the rate bumps back up to the normal 12.24%.

I put a little thought into it, and thought that there might be some advantage to using the 1.99% rate with the longer term.  But, I had to be sure.  I’m no math wiz, especially when it comes to interest rates, so I went looking for a calculator that might help me figure out for sure if there was an advantage to one rate or the other.  I found two that gave me the numbers I was looking for.

Credit Card Offer Calculators

The first was a calculator from my friend Todd Tresidder over at FinancialMentor.  It’s a simple Credit Card Comparison calculator.  I think it’s meant to compare different credit cards, but I just punched in the numbers for the different offers on the same card and hit the button.  What did it tell me?

In both this calculation, and the second one, I used a few assumptions.  These aren’t really true assumptions, but I had to use some baseline to determine the difference.  I assumed that it would take us longer than 18 months to pay off the entire balance.  I used an approximate payment.  I also assumed (since the calculators didn’t allow for different payments) that we’d pay the same payment for the entire life of the credit card.  Here’s what I found.

In Todd’s calculator, the difference between the two offers was about 5 payments to payoff, and about $300 in savings.  Which one won?  The 1.99% offer. My initial thoughts were confirmed.  An interesting note; I played with the payment amount, and the more we pay as a payment, the less difference there is.  In fact, there’s a tipping point, where the 0% offer is better.  As I suspected, the more you pay, the sooner you’ll pay off the balance, and the more advantage you get from using the 0% rate.  But, remember that I made the assumption that we wouldn’t be paying it off in less than 18 months, so that isn’t an issue in our case.

The second calculator that I used is this credit card balance transfer calculator.  This calculator seemed to be set up a little more for this specific calculation.  It adds in calculations for the balance transfer fee which is something that you certainly need to take into account if you are thinking of transferring a balance.  With all the numbers punched in, and the calculator spinning up, my initial thought was once again confirmed.  In fact, this calculator seemed to show even more advantage to going with the 1.99% rate.  Here, I got an answer of about $405 in costs.  Again, massaging the payment gave the same results in that the more you pay, the more advantage there might be in taking the 0% rate.

We Have A Credit Card Offer Winner!

So, all that calculated, we filled out the check for the 1.99% transfer and sent it off.  But, it brought an interesting revelation to me.  You’ve got to compare the offers.  A difference of a few months, or a few interest rate points can make a much larger difference than you think.  Compare them thoroughly, and try and make accurate assumptions about your payoff behavior so that calculators like the ones I used can give you accurate information.

Have you ever found that an offer that, at first glance didn’t seem the best, really was?