Credit Readiness

Credit Readiness

Understanding and managing your money doesn't have to be confusing. Learning about how to handle credit, debts, income, and budgeting gives you the tools to make smarter choices, reach your goals, and avoid common money mistakes. Use the drop down below to look at frequently asked questions for several important financial topics.

Credit Readiness FAQ

Credit

What is credit, and why is it important?
Credit is borrowed money you agree to pay back. It’s important because it affects your ability to get a loan to purchase a home or a car for example.
What is a credit score?
It’s a 3-digit number (300-850) that shows your history of paying back borrowed money. Higher scores are better.
How is a credit score calculated?
It’s based on payment history, how much debt you use, length of credit history, new accounts, and credit mix.
How do I check my credit score?
You can check free through apps like Credit Karma or get a full report once a year at AnnualCreditReport.com.
How do I start building credit?
You can open a secured credit card, apply for a credit builder loan, or become an authorized user on someone else’s credit card. Just make sure you make your monthly payment on time.
How long does it take to build good credit?
Usually, six months to a year to establish and a few years to build strong credit.
How much of my credit limit should I use?
Typically, you want to keep your balance under 30% of your credit limit to maximize your credit score.
What happens if I miss a payment?
On top of paying late fees, the late or missed payment reports to the bureaus which can hurt your credit score.
How long do negative marks (like late payments or collections) stay on my report?
Most negative marks last seven years, though their impact fades over time.
Can paying off debt improve my credit score?
Yes, lowering balances and paying on time can boost your credit score.

Debts

What is debt and how does it work?
Debt is money you borrow and must repay, typically with interest.
What’s the difference between good debt and bad debt?
Good debt, such as student loans or mortgages, can build value; bad debt such, as high interest credit cards, can cost more than the item.
What is interest and how does it affect debt?
Interest is the cost of borrowing money. The longer you take to pay it back, the more it adds up.
What are common types of debt?
Common types are credit cards, student loans, car loans, personal loans, and mortgages.
How do student loans work, and when do you have to start paying them back?
You borrow the amount needed for school through federal or private student loans. You typically start paying them back six months after leaving school. This can vary based on lender and loan programs.
What is the difference between federal and private student loans?
Federal loans are funded by the government with flexible terms. Private student loans are typically from banks and can be more expensive with higher interest.
What is the difference between a loan and a line of credit?
A loan gives you a lump sum of money upfront. A line of credit lets you borrow as needed up to a limit.
How do minimum payments work on credit cards?
It’s the smallest amount due each month- but paying only that means your debt grows with interest.
What is default, and what happens if I default on a loan?
Default means you stopped making payments on your debt. It harms your credit score, and collectors may start the collection process.
Can debt be forgiven or discharged?
Sometimes it can be forgiven or discharged through bankruptcy or loan forgiveness programs, but it’s rare and often comes with consequences.

Income

What is the difference between gross and net income?
Gross income is your income before taxes are deducted. Net income is your take home pay after all taxes and deductions are withheld.
What are payroll taxes, and what do they pay for?
Payroll taxes are taxes deducted from your gross income. They help pay for government programs such as Social Security and Medicare.
What is the difference between hourly pay and salary?
Hourly pay is calculated per hour worked and can vary. Salary is a fixed yearly amount evenly split between paychecks.
What is the difference between regular pay and overtime pay?
Regular pay is your normal hourly pay for 40 hours per week. Overtime pay is typically 1.5x your normal pay beyond 40 hours.
What is FICA on my paycheck?
FICA is money deducted from your check for Social Security and Medicare.
What are withholdings, and how do I choose them?
It is the money for taxes that your employer holds back. You can adjust the amount on your W-4 form.
What are common deductions taken from my paycheck?
Common deductions are income taxes, Social Security, Medicare, health insurance, and retirement contributions.
What is the difference between W-2 and 1099 income?
W-2 employees have taxes taken out by the employer. 1099 employees are independent contractors, not an employee and are responsible for withholding their own taxes.
What is the difference between active income and passive income?
Active income is money that you work for such as income from a job. Passive income is money that comes with little effort such as investments or rental properties.
How does my income affect things like getting an apartment, loan, or credit card?
Lenders and landlords look at your income to decide if you can afford the monthly payments.

Assets

What is an asset?
Everything you own that has value is an asset (cash, car, home, stocks).
What is a bank account, and why do I need one?
It is a safe place to store, spend, and save money.
What is the difference between a checking and savings account?
A checking account is designed for daily use. A savings account is designed to store money while earning interest.
How do I open a bank account?
You can visit a local bank to set up an account. You may need to bring some documents such as ID, social security card, and a small deposit through check or cash.
Is my money safe in a bank account?
Yes! The FDIC insures up to $250,000 per depositor per bank.
What is an overdraft, and what happens if I spend more than I have?
An overdraft occurs when you spend more than you have in your bank account. The bank may cover it but charges a fee.
What is the difference between liquid assets and non-liquid assets?
Liquid assets are ones that are easy to use such as cash or bank accounts. Non-liquid assets are ones that can be used but are typically harder to use such as homes or retirement funds.
Do retirement accounts like a 401(k) count as assets?
Yes, they are long-term assets for your future.
How do assets help build wealth?
Your assets grow in value over time and can be used to earn more money through reinvestment.
How can I grow my assets over time?
A local financial planner can help guide you through growing your assets through investments and plans on saving your money.

Budgeting

What is a budget, and why do I need one?
A budget is a plan for your money, so you avoid overspending.
How do I start making a budget?
Track your monthly income and expenses, then set limits for each category.
What is the difference between fixed expenses and variable expenses?
Fixed expenses are going to be the same amount each month such as rent or mortgage payments. Variable expenses change each month such as food or gas bills.
How do I track my spending effectively?
You can use an app, spreadsheet, or just writing it down can help you track what you spend.
How do I budget if my income is irregular (like gig work or tips)?
Base your budget on the lowest expected income and save extra when you earn more than expected.
What is the best way to handle unexpected expenses in a budget?
Having a “rainy-day” or emergency fund can help you prepare for the unexpected.
How often should I review or update my budget?
At least once a month, or whenever you have a change in income or expenses.
How do I budget for big purchases like a car or vacation?
Set a savings goal, divide it by the number of months you have to save, and put it aside each month until you have reached your goal.
What is the difference between short-term and long-term financial goals?
Short term goals are ones that can be achieved in under a year. Long term goals are ones that will take several years to accomplish.
How can I budget for fun without overspending?
Build it into your monthly budget!

Smart Habits

  • Track your spending- know where every dollar goes.
  • Make a budget and stick to it.
  • Try to pay more than the minimum on credit cards.
  • Keep credit card balances low (ideally below 30% of your limit).
  • Check your credit report regularly for errors or fraud.
  • Set financial goals (short and long term) and review them regularly.
  • Start investing early.
  • Pay bills on time (set reminders or autopay).
  • Build good financial habits early.
  • Work with local experts to put yourself in the best position possible.

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Group Presentations

Jacquise Frison
NMLS #2705273

Group Presentations

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