How a Personal Loan Impacts Your Credit

The relationship between loans and credit scores
It’s well-known that your credit score has a big impact on your ability to take out a loan, as marchfeatured_prsnllnimpactwell as on the total amount of the loan and interest rate your lender offers. But did you also know that the relationship works in the other direction as well?—that a loan can impact your credit score?

To understand this relationship, you have to consider where your credit score comes from. Your credit score is calculated using a variety of factors, including your payment history, the total debt you owe and the number of credit lines recently opened. When you take out a personal loan, the last two factors are affected.

Even just applying for a loan has an impact, since your credit score goes down slightly each time an inquiry is placed on your credit report by a lender checking your credit.

The financial advantage of finding a great loan far outweighs the negative impact that an inquiry has on your credit score. If you take out a personal loan to pay back a high-interest credit card, for example, you would benefit from the reduced interest and your credit score could be improved overall.

“A personal loan may help your credit score by moving credit-card debt over to the installment loan column,” states NerdWallet staff writer Amrita Jayakumar. “The way credit scores are figured, borrowers who use all or most of the available credit on their cards get hit with a significant penalty.”

Another thing to know about the impact that loan applications have on your credit score is that each inquiry may not count fully against your credit score if you are just comparing the rates of more than one loan. For example, if a car dealership places an inquiry on your credit score in the process of offering you an auto loan, and you want to check with your local financial institution to find a better deal, the second inquiry may not count against you.

“Generally any requests or ‘inquiries’ by these lenders for your credit score(s) that took place within a time span ranging from 14 days to 45 days will only count as a single inquiry, depending on the credit scoring model used,” according to the U.S. Consumer Financial Protection Bureau. “You can minimize any negative impact to your credit by doing all of your shopping in a short amount of time.”

Once you have taken out your loan, it is important to make regular payments in order to maintain and improve your credit. A strong payment history goes a long way toward achieving a good credit score, and as you pay down your loan, your overall debt will decrease, further benefiting your credit.

So if you are considering taking out a loan, don’t let fear of a negative impact on your credit score stop you from exploring your options.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Is It Still Important to Know How to Balance a Checkbook?

Even in the digital age, knowing how to balance your checkbook is still relevant

People used to learn to balance a checkbook with a registrar log of all their daily marchfeatured_balcheckbooktransactions to better keep track of their money. The digital age, and the immediate access we now have to our bank accounts online, has made this skill less necessary. Yet it’s still important for several reasons.

To start, it’s still a tried-and-true method for verifying your financial institution’s statements, reports an October 2016 article on financial resource website The Balance by contributor Deborah Fowles. Although it’s rare, financial institutions can still make mistakes; they typically allow a maximum of 60 days to inform them of an error, so it’s important to stay up to date on your transactions.

Keeping a written record of all your daily transactions, as with balancing your checkbook, is also a helpful way to ensure you don’t overdraw on your account’s funds, reports an article in Investopedia by contributor Amy Fontinelle.

“In the age of electronic banking, checkbook balancing is not as straightforward as it once was – most people have money entering and leaving their accounts through methods other than writing and depositing traditional paper checks, such as direct deposits from an employer and ACH transfers to pay your bills online,” says Fontinelle. Keeping a written log will ensure you don’t forget about any transactions that haven’t yet posted to the account.

An example, adds Fontinelle, is a check you’ve written and sent to someone for his or her birthday. Sometimes, people hold on to checks for a while before depositing them, and if you’ve forgotten about the check you’ve written, you may not have sufficient funds in your account when the check is finally processed. Not only will you incur an overdraft fee from your financial institution, but the person depositing the check could also incur a fee, and may ask you to pay it.

“Because we have the electronic means, we don’t feel compelled to balance our checkbook. But by not looking at what you’re doing on a monthly basis, you’re not keeping good track of what’s going on with your finances,” says owner of Boucher Financial Planning Services Frank Boucher in a January 2013 article on Bankrate.com. And if you’re not keeping track of your finances, you’re bound to overspend and will end up paying fees you could have avoided.

There have also been cases when a financial institution has moved extra money into an individual’s account, reports Fontinelle. Although it is the financial institution’s error, you will be billed a theft fee if you spend this money and can’t maintain funds to cover the extra money. It’s important to monitor your balance so you can notify the institution immediately if such an error occurs.

According to a January 2013 article on Bankrate.com by contributor Marcie Geffner, reconciling or comparing your written checkbook registrar to the financial institution’s monthly statement is also a good way to detect fraud or unauthorized transactions made to your account. In addition, having a written record of your daily transactions can help protect you from identity theft, especially in an age rife with cybercriminals.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

How a Work-Study Program Can Help Offset College Costs

Work-study is a great way to make income while attending college

Work-study programs are offered on a first-come, first-serve basis to students with marchfeatured_workstudyqualified financial need as a means to make income. Whether in undergraduate or graduate school, you may want to consider applying for a work-study program to help cover the costs of obtaining a degree.

The basics of a work-study program
According to a June 2015 article in U.S. News written by personal finance editor Susannah Snider, federal work-study programs allow students to make a subsidized, or government-supported, income by working at a qualifying part-time job, usually on a campus. To qualify, a student must demonstrate financial need and fill out the Free Application for Federal Student Aid (FAFSA).

Based on need and on a first-come, first-serve basis, the federal government allots an income that can be earned through a work-study program, adds contributor Jon Fortenbury in a March 2014 article in USA Today College. Your total income allowed for work-study is predetermined based on your financial need, and you cannot exceed this awarded amount. Lastly, the work-study program is typically based on a 20-hour maximum workweek.

In essence, Snider says, the government uses work-study programs as a tool to provide students with a means of receiving money to cover the costs to attend college. Students earn at least the federal minimum wage, if not more, and because it is considered as income and not a loan, it does not need to be repaid.

The benefits of work-study income
Just as with any other job, students can use this income to pay for their education and living expenses. Students can elect to receive the entire paycheck and use the money how they wish or they can request an automatic payment made to tuition or fees with each pay period, Snider adds.

While a work-study income alone is not enough to cover all your costs, it still helps cover some expenses, Fortenbury says. Additionally, because the programs are typically on campus, you will save money that would otherwise be used for transportation to and from an outside part-time job.

Finally, because the federal government subsidizes work-study paychecks, it doesn’t count the program as true earned income—so it won’t affect how much financial aid you are awarded. Conversely, reporting an income made with an outside job could affect the financial aid you can receive.

“In addition to earning extra cash for college, work-study participants may pick up professional skills and make on-campus contacts. Students may get a chance to work in a field related to their major and with a boss who understands that studying is a priority. A good boss can help schedule work around classes and serve as a future job reference,” Snider advises.

As long as you can balance a busy class schedule with part-time work, a work-study program is advantageous to helping you offset your costs and keeping your debt low.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Financial Skills Everyone Should Have

Basic money management skills every adult should havemarchfeatured_essnfinskills
Basic money management skills are key to a financially successful life. Conversely, if you don’t learn the basics of your finances, you can end up in serious debt and struggle to make ends meet.

Basic management skills
As an adult, you should be able to manage your money, including income coming in and bills and purchases going out. This is not to limit yourself but rather to free yourself, enabling you to spend realistically based on how much money you actually have, so as to avoid going into debt.

According to Jesse Campbell in a May 2015 article in Money Management, a financial counseling and education service provider, one of the foremost skills every person should have is how to maintain a budget. Campbell suggests starting simple and making a plan for your income based on your bills, spending needs and savings. As budgeting tends to become more complicated with age (adding in mortgages, retirement accounts and even college savings plans), it’s crucial to know how to budget and stick to a plan.

A February 2016 article in The Balance written by contributor Miriam Caldwell adds that understanding how to set financial goals, including how to break them down and actually meet them in a realistic amount of time, is essential to planning for long-term savings and spending needs, like emergencies or even retirement. This will further help you budget as you set aside money for different spending goals.

Caldwell also reports that with the digital age and the advent of online banking, many people have forgotten or no longer practice the skill of balancing a checkbook. This basic skill is a must for all adults. Computers can still make mistakes and it’s important to still know how to check your spending each month to ensure your accounts reflect the correct balance. Clerical errors or fraud can go unnoticed and hurt you in the long term if not taken care of immediately.

Understanding credit and financial agreements
Even in the digital age, you should be able to know how to read a bank or credit card statement.

Whether your financial statements are printed out or available online, understanding them and the information provided is imperative to managing your money and maintaining organization. You should also get in the habit of reviewing your statements on a regular basis, whether daily, weekly or monthly, Campbell reports.

When opening a new credit card or debit card, or applying for a loan, you should be able to read through and understand the terms of your loan or line of credit, including interest rates and fees, Campbell adds. An offer that looks great on paper may end up sinking your budget if you overlook or don’t know the conditions and terms of your agreement.

Furthermore, every adult should know how to build good credit and understand the benefits of good credit history. Caldwell notes that it’s especially important to know how to manage your credit cards and pay your bills on time to keep your debt low and help build good credit.

Although it’s tempting to avoid using credit altogether, doing so is essentially the same as creating a bad credit history, Campbell adds. In the long term, it will only hurt your ability to get credit when you need it later, like for a mortgage, a car or another major expense.

Should you have concerns about your financial life, don’t shy away from consulting a financial adviser of other resource.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.