The forecast for California’s budget is in, and it’s not looking pretty for California State University students. So far, CSUN students are feeling the burn from high tuition increases, delays in the disbursements of Cal Grant awards and the common expenses that come with starting a new school year.
Before students reach into their wallets for that shiny piece of plastic to pay for that expensive law book, there are a few things they should know.
“First, when you borrow something, you need to pay it back. Second, interest is like rent that you pay for the use of the money,” said professor Michael Phillips of the finance department via e-mail.
The easiest way to end up in debt is to let your balance pile up. Not only does this increase one’s existing bill, but the interest alone is likely to have doubled or even tripled the original charge.
To avoid this, Phillips highly recommends people pay the entire balance off each month.
Ray Romero, a finance student, also stresses the importance of paying the entire balance as soon as possible.
“When borrowing, the sooner the balance is (paid) off, the less you will pay back in finance charges,” he said.
What most students fail to understand is the importance of paying off monthly fees. Not only does this affect the amount of money going into the account, but the credit score is calculated based on this and other variables. The credit score indicates how likely a consumer is to pay a debt.
The credit score is calculated by three different credit bureaus: Equifax, TransUnion and TransAmerica. The highest possible credit score is 850.
“Having a good credit score is important because people with bad credit scores may face higher interest rates or get turned down for loans,” said professor James P. Dow from the finance department.
As Romero describes, a credit score is “a numerical representation of your responsibility and level of risk you represent to a financial institution.”
Credit scores are lowered when payments are not made on time because of the lack of the responsibility the individual holds to pay on the due date. The failure to pay promptly also increases interest rates.
This not only pertains to credit card bills. If a borrower is late paying a bill, their credit card company reserves the right to increase the interest rate as much as 39 percent under the Universal Default Clause.
If a borrower wants to show they’re a loyal and trustworthy customer, it is advised that they keep their first credit card open. The date from when a person first activated a credit card will reflect the credit history length and will demonstrate financial responsibility.
Romero advises that college students should not have more than two credit cards and that although there is no actual data, it has been known to lower a person’s credit score every time they get close to maximizing their credit limit.
Most companies do not want borrowers to know they have the right to raise interest rates without notifying the consumer. Often times, the borrower is notified through a mailed notice.
With the beginning of a new school year come textbook fees, parking permits, lab fees and more. The state of the economy has most students without a steady job or steady income.
According to a recent survey conducted by Sallie Mae, a provider of student loans, 92 percent of college students charged education expenses on a credit card. This is up from 85 percent from the 2008 survey.
Experts from the finance department agree that the best way to take advantage of your credit card is to set a budget and to learn the difference between a luxury and a necessity.
The 2009 Sallie Mae report also indicates that 84 percent of college students expressed that they needed more knowledge on the topic of personal finance.
Fortunately, CSUN students don’t have to be part of this statistic. The finance department offers Finance 302 where students learn the most important basic financial concepts pertaining to insurance, credit, investment, debt management and other lifestyle issues. The class (which is still open) is offered to all CSUN students including non-finance majors.