Carleda Johnson
Independent Living Skills Coordinator
Happy Financial Literacy Month!
Answers to some of the most common questions about money
Editor’s Note: Carleda Johnson is Access Living’s Independent Living Skills Coordinator and the instructor in all of Access Living’s financial literacy workshops. She is also the coordinator of the Cross-Disability Support Group. In this article, Carleda celebrates Financial Literacy Month by answering some of the most common questions she receives about financial literacy.
Frequently Asked Financial Literacy Questions
Interested in taking control of your money? A new Financial Literacy Workshop series begins on April 22! Learn more and register for this free class here.
How do I improve my credit quickly?
Having a good credit score is important for long-term financial health. Here are a few ways you can quickly improve your credit score:
- Pay your bills on time every month. Early is even better!
- Pay more than your required minimum payment.
- Ask your credit card company to increase your credit limit.
- Keep your credit cards open! Do not close your credit cards even if you’re not using them. Your oldest credit cards say more about you than a card you’ve only had for a year or two.
I pay all my bills on time; why is my credit score still low?
It’s great to pay your bills on time, but if your credit card balances are high, paying bills on time won’t move your score up too much. In this instance, understanding and tracking your ‘credit utilization’ will help you.
- What is credit utilization? Credit utilization is just a fancy way of saying how much of your available credit you’re using.
- Here’s an example:
- You have a credit card with a limit of $1,000. Your current card balance is $800. You are using 80% of your available credit.
- In this instance, your credit utilization is very high, and generally you want to keep your credit utilization low.
- A good rule of thumb is to try and keep your credit utilization at 30%.
- Here’s the formula you can use to determine your credit usage: CARD BALANCE ÷ CREDIT LIMIT x 100 = CREDIT USAGE
What factors do lenders consider when approving or denying a loan?
Lenders consider a lot of things when it comes to loans, including information on your credit report, you income, and any current debts you have. Ultimately your creditworthiness is based on the 4 Cs:
- Character: Do you pay your bills on time?
- Capacity: Can you take on more debt and still pay it back on schedule?
- Collateral: Do you have an asset such as a house or a car you can use to secure a loan?
- Capital: What assets do you have (e.g. cash, car, house, stocks)?
What is a balance transfer and is it a good idea for helping with credit?
A balance transfer is taking the balance from one credit card and moving it to a different credit card. This is usually done with a new credit card that has zero interest. What’s nice about a balance transfer is that it can allow you to pay off that debt more quickly because your payment will go directly towards the amount you own and not to the interest.
What steps should I take if I am a victim of Identify theft?
There are a variety of things you can do:
- Notify affected creditors or banks
- Put a fraud alert on your credit report
- Check your credit reports
- Freeze your credit
- Report the identity theft to the FTC
- Go to the police
- Remove fraudulent info from your credit report
How is my credit score calculated?
FICO weighs these five components to come up with your score:
- Payment history: 35%
- Credit utilization (amount owed vs. total available credit): 30%
- Account age/length of credit history: 15%
- New accounts 10%
- Credit mix/type of credit used: 10%
What is the difference between a soft inquiry and a hard inquiry
A hard inquiry occurs when a lender with whom you’ve applied for credit reviews your credit report as part of their decision-making process. However A soft inquiry occurs in cases where you check your own credit or when a lender or credit card company checks your credit to preapprove you for an offer.
As a person with a disability I can only save $2,000 without losing my benefits. How can I save for the future without losing my benefits?
Yes! ABLE accounts are a great way for people with disabilities to save. ABLE accounts are tax-advantaged savings and investment accounts for individuals with disabilities. The individual with the disability is the ABLE account owner. The account owner, family, friends, may contribute funds into the account. ABLE account owners – both those who receive and those who do not receive public benefits – may save for qualified disability expenses related to transportation, health care, housing, education, retirement and more. You can learn more about ABLE accounts here.
Where can I go to get assistance with paying my utilities?
The Low Income Home Energy Assistance Program (LIHEAP) may be able to help with the below items:
- Assistance with heating or cooling bills
- Emergency services in cases of energy crisis, such as utility shutoffs
- Low-cost home improvements, known as weatherization, and energy-related minor home repairs that make your home more energy efficient and lower your utility bills.