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Tools and Tips

Having little to no credit can be tricky when it comes to car buying. You have three options:

  • Get a co-signer (this will probably be one of your parents/guardians)
  • Build your credit score
  • Get a First-Time Auto Loan

While the first option may look like the easy way out, it is very high risk and has very little reward; you will be placing most of the burden on the co-signer. They will be taking full responsibility and face all consequences if you default, meaning that you fail to make the payments, on the loan.

The sooner you start building your credit, you not only open up the opportunity to purchase a car, but a house, a vacation, and other large purchases too.

Building good credit takes time. Here are some tips:

  • For those with no credit, get a secured credit card. This card is based on the deposit you provide, and serves as your credit limit
  • Make payments on time.
  • Keep your balances low and pay them off in full each time.
  • Don't apply for too many credit cards at once
  • Keep your accounts open as long as possible

Give yourself at least six months to establish and/or build credit, and you could be one step closer to owning a car.

Lastly, you could apply for a First-Time Car Buyer Loan, which allows individuals to qualify for a loan with little or no credit. Since credit score is not taken into consideration for this loan, there is more emphasis on income as well as your down payment. With this option, you won't need to put a co-signer at risk and  you'll be able to build your credit score! 

What's a credit union? How can an Accessory Dwelling Unit help me? How do I protect myself from ID theft? Get the inside scoop on managing your money and lifestyle from the finance gurus at HawaiiUSA. Watch our Money Matters segment featured on KHON2's lifestyle morning show, Living808, hosted by Trini Kaopuiki and Taizo Braden. Tune in weekdays at 8:00 am.

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We hope you're enjoying your jouney to becoming more financially fit this month. This fun infographic, "April Foolish Financial Decisions", shows you what not to do with your millions.

Infographic describing several foolish financial decisions

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Credit Cards Or Debit Cards – What’s The Smartest Swipe?

Most people own at least one debit card and at least one credit card. Although they may look similar, there are many differences between the two.

Each time you use a credit card, you’re borrowing money. You’ll need to pay that money back to the lender along with interest.

A debit card, on the other hand, simply transfers your own money from your checking account to the vendor you’re paying. The funds are taken directly from your account in a similar manner as using checks – only quicker. Some processing terminals will require a PIN and some will require a signature.

Both credit and debit cards are convenient, quick and easy. They’re also safer than cash, because cash cannot be replaced if lost or stolen.

Which one should you use? The answer depends largely upon your lifestyle.

1.) Budgeting

Credit cards allow you to buy now and pay later. This can quickly turn into a budgeting nightmare. If you think you’ll be tempted to overspend, regular credit card use may not be ideal for you.

However, it’s nearly impossible to incur thousands of dollars of debt through debit card usage. Most credit unions will cover purchases that put your account into the red, but only up to a few hundred dollars. If this happens, you’re accountable for your purchases and charged an overdraft fee.

2.) Safety

If you report suspicious charges within 60 days, credit card companies are obligated to investigate and restore the funds if the charges are fraudulent. They also offer consumer protection on purchases. You can always cancel a charge if you are the victim of an online scam. This makes credit cards the ideal choice for large or fragile purchases that will be delivered to your home for additional insurance on the purchase.

For debit cards, you may be liable for a portion or all of a fraudulent charge, depending on how quickly you detect and report it, which is why it’s good to monitor your transactions and statements closely.

 3.) Rewards

One major draw for credit cards is the points awarded for purchases. That’s seemingly a strong advantage over debit cards. But did you know that some debit cards even have rewards programs?

Whether you’re looking at a debit or credit card with rewards, take the time to consider which rewards you’ll actually use, and if they off-set any fees associated with the card.

4.) Credit History

Credit cards help establish or restore good credit. Occasionally using a credit card and paying your bill on time can really improve your credit rating. This, in turn, improves the likelihood of earning favorable terms for home loans, auto loans, personal loans and more.

5.) Annual Fees and Interest

Credit card annual fees and interest add up. If you’ve overspent one month and are unable to cover the entire amount due, you may need to pay only the minimum payment. More of your payment goes toward interest than toward lowering your bill. This makes the next payment higher.

If you don’t think you will be able to pay your bills in a timely manner, keep credit card usage to a minimum.

Good Ideas, Bad For Credit: How Your Responsible Choices Can End Up Hurting Your Credit Score

Q: I’ve had some trouble with credit in the past, but I’m trying to turn over a new leaf. I think I’m doing everything right, but my credit score still isn’t rising! What gives?

A: Credit scores can affect you more than you know. Employers look at credit scores. Landlords look at credit scores. Bill providers look at credit scores, and they might decide to charge you if yours gets too low. With all this pressure, you’ve no doubt started working on some good habits for improving your credit score. You pay your bills on time, are sure not to max out your credit line and work hard not to default on a loan. You might be surprised to find out that some actions you take to improve your credit score are actually hurting it.

If your credit score isn’t where you want it to be, it might be due to one of these habits. Read on for four good ideas that might actually be hurting your credit score:

1.) Turning down credit

It might seem like a good idea to reject a higher credit limit. If your credit card offers to boost your limit, that might seem to indicate you have more money to spend. If you’ve struggled with responsible credit management in the past, you might want to turn it down in an effort to keep your spending in check. Keeping your credit limit low can give you a budget and a sense of security regarding when you’ll stop yourself from spending.

However, a higher credit limit does come with benefits. To be exact, it can boost your score quite a lot through something called a credit utilization ratio. That’s the ratio of your credit card balance to your credit card limit. The less you spend relative to what your limit is, the higher your score in terms of this factor. That means, if you have a higher credit limit, you’ll be using less of it, and therefore increasing your score.

2.) Avoiding credit cards

Some people might think it’s easier to just not have a credit card at all. While it might make your life simpler at first, it can complicate your relationship with credit in the future. You might not need credit for day-to-day things like buying groceries or gas, but you will need it for a home loan, auto loans and to prove to potential landlords and employers that you can be trusted. So long as you’re paying everything on time and not carrying a high balance, a credit card is beneficial in the long run.

3.) Closing paid accounts

Paying off a credit card can be a big struggle. Once it’s over, your instinct might lead you to throw it away, burn it or otherwise have it completely out of your life once and for all. Credit reporting agencies say something different, though. Since 15% of your credit score is the length of your credit history, you want to keep your cards for as long as possible.

Additionally, your credit utilization score is worth 30% of your total score. Closing a credit card account also kills available credit, which lowers that balance-to-limit ratio. You can destroy the card itself and delete its record from online shopping sites to be certain you’ll never accidentally use it, but don’t cancel it. Even after all that, you should keep the account open (provided there’s no annual fee attached to it), just to keep your score up.

Q: I just had a pretty significant financial crisis. I underwithheld on my taxes all year and ended up cleaning out my savings to pay the bill. What do I do now?

A: All the best financial experts agree you need to keep an emergency fund. Keeping three to five months of living expenses in a savings account, certificate account or investment account can be the difference between a temporary hardship and a lifelong debt trap. Using that money instead of credit cards or short-term loans is a lot less expensive in the long run.

There are many reasons why you might need to use that money. It could be from an unexpected expense, like a medical bill or a car repair. It could also be job loss that forces you to tap out your savings. Whatever the cause, it’s a whole lot cheaper to pay for it out of savings than to have to borrow, and it’s much less embarrassing than having to beg friends or family to cover your bills.

In the midst of a stressful crisis, it can be hard to focus on the positive. It’s important to take a moment to congratulate yourself for having the foresight to manage your problem. Things could be much worse than they are now. In addition to all the stress you’re currently feeling, you could have a big ball of debt to add to it. It’s not because of luck, it’s because of good planning.

Despite that relief, you’re not out of the woods yet. Without savings, you’re in a position of significant insecurity. Another crisis right now, even a very minor one, can cause financial problems that will create a ripple effect on into the future. You could find yourself in a much worse position in three months’ time than you are now.

Getting back to a position of financial security should be your highest priority. That means rebuilding your emergency fund as quickly as possible. These three steps will have you back on track before you know it.

1.) Make an emergency budget – and stick to it!

Without an emergency fund, you’re one blown tire, one missed shift or one broken arm away from a financial catastrophe. That’s why an emergency fund is so important. Cut spending wherever you can. If you can do without cable for a few months, call and suspend service. Temporarily cutting back on media, clothes and other discretionary spending is also a great idea.

Also, consolidate your savings. If you’ve been saving for a vacation, a new car or some other big-ticket item, stop putting money into those “buckets” until you rebuild a few months of living expenses. Once you return to having a decent cushion, you can get back to saving for your other priorities.

If these cuts aren’t enough, finding money in more extreme places might be helpful. If you can, spend a few months taking public transportation. If it works out well, you might find yourself thinking about selling your vehicle for another quick infusion of cash.

Remember, a budget is only as good as your commitment to it. If you make extreme cuts that you can’t keep, you’ll end up spending even more because you feel entitled to it. Make sure your budget is realistic and humane!

2.) Build income wherever you can

There’s no secret about building your savings. You can only save the difference between your income and your expenses. In your budget, you worked on the minimizing expenses part of that equation. Now, it’s time to turn your attention to the income side.

Raising your income at work could be as easy as asking for a raise. It could also mean taking additional hours or picking up extra shifts from co-workers. You don’t have to do so for the rest of your career, just for a few months until things get better.

You may also need to boost your income outside work. Selling old clothes and books can be a source of quick cash. Picking up freelance or contract work can also be a way to earn extra money. It’ll create a stressful few months, but it’ll be worth it to get back to security. You might also make connections that could help your career over the long term.

3.) Build a backup plan

The worst thing that could happen right now would be another crisis with no way to pay for it. You may not have the money to deal with it, but you’ve still got your financial smarts. It’s time to make a plan.

Think about what you’d do now if you lost your job, even without your emergency fund. Make a list of phone calls you can make to find temporary work. Who in your network do you know who could use your skills on a temporary or contract basis? Do you know anyone who, if you absolutely had to, you could call for a quick loan?

There are a few other questions to ask. What stuff sitting around your house would you sell if you had to? What does your food budget look like with $50 taken out of it? It’s easier to make these decisions when you’ve got the time and space to reflect on them. Making these choices with a past due notice in hand is much harder.

Hopefully, you’ll never have to use these ideas, but you’ll feel better for having thought about them beforehand. It’s also something proactive you can do instead of worrying. Taking action, any action, to remedy your situation can help fight the stress involved in insecurity and get you in a better head space. That alone is worth the effort.