Lesson in credit

Erin Boyington Home-schooler

When your parents sit you down to give you the credit talk, it would be wise to pay close attention.

Outstanding consumer credit debt (unpaid loans for things other than houses) reached more than $1.6 trillion in the first quarter of 2002, according to the Federal Reserve. Last year, personal bankruptcies (those declared by individuals), reached a record high, and this year they are supposed to climb even higher.

“The biggest problem with credit cards is that commercials, advertising and the behavior of other people who are in debt will teach us over and over in these negative ways that it’s OK to go into debt, and it isn’t,” said Rick Inman, former Spokane section manager at Household Finance, and former area manager at Conseco Finance.

“There are so many older people who cannot retire. You see them, 70, 80, maybe 95 years old working at McDonald’s because of debt problems, and I see young people in an even worse condition if they don’t learn when they’re young to stay out of credit card debt.”

Credit cards are a tricky issue for someone who has just turned 18. There are many ways to get into trouble and leave a black mark that will stay on your record.

Yet having a credit history is necessary to obtain home, student or car loans. Even good credit can be a negative for those wary of getting into debt. “Good credit” means that you spend a lot on a credit card, and pay it off consistently, along with interest. No credit history is often considered “bad credit,” because the creditors have no way of knowing that you will make the payments on time. There are other ways of making a history for yourself besides getting and using a card, however.

“I’ve got people that come to me that have absolutely no credit whatsoever,” said Phil Bruni, a loan officer for U.S. Bank. “Sometimes we can build them a credit record, like through their cable TV, their phone bills, their utility bills. It gives you a chance to go back and build a history so someone can look at it and make a decision as to whether you’re credit-worthy or not.”

The habit of using plastic has been so ingrained on the American mind that many Americans are deeply in debt. Even paying interest is not a given, if the bills are paid completely every month. But all of us learn our spending habits — right or wrong — from our parents and our society.

Kiyosha Ratliff, 17, a senior at East Valley, has learned good habits from her parents.

“My parents taught me you have to work for things you like, and saving is a part of it, as well as living below your means. If you can do that, you’re halfway there.”

What is the other half?

“Keeping the rest of it, not going into debt, avoiding interest — pick one,” Ratliff said.

Lina Zayko, 16, a Running Start student at Spokane Community College, has learned a similar lesson from her parents, who have avoided debt, except for in the case of their house.

“My parents have never had a credit card,” Zayko said.

“The main thing is unless you have (cash) in your hand, any other way of getting it is going to cost you multiple times the amount of money,” Inman said.

Sometimes, credit cards are inevitable. It is impossible to rent a car, or in some cases even book a hotel without a card. Some people have even speculated that credit cards will become our only currency.

For teens ready to take on the responsibility of a credit card, Bruni suggests using one with restraint.

“I would make myself submissive to a parent, or someone who is already established with credit,” he said. “I would keep the limits low to start out. Be accountable to that other person, your mentor, and make sure you’re making the payments every month.”

And keeping your spending within your means is an important part of using credit responsibly.

College is an enormous expense that many must consider. Student loans are often the first step toward falling into debt. Paying off college tuition is difficult, but the financial burden can be lightened by working or getting scholarships to supplement student loans, rather than just relying on loans to carry the burden.

Some students have parents who can help ease the burden, while others hope for scholarships to pay for college.

“I’m going through Running Start, so my first two years are being paid off through high school. I’m getting a scholarship, maybe. I’ve got good grades, so I should be able to get one,” said Zayko, who will be going to SCC in the fall.

“Student loans are kind of like crystal ball gazing,” Inman said.`You’re taking a loan out on the assumption that you’re going to have X number of dollars in income, and that’s a very uncertain thing. Some people do very well. They get student loans, they pay them off just fine. But I think you have to be very cautious.”

This sidebar appeared with the story:

Credit facts

* Credit card bills are often wrong, so keep good records and read the fine print. Put all complaints in writing, and keep copies.

* The average interest on a store credit card is 19.8%.

* No preset spending limit doesn’t mean that there won’t be a limit, especially if you start spending abnormally large amounts of money.

* The credit card we have today has only been around since the 1950s. The first one was only accepted at restaurants, and was called Diner’s Club.

* Bankruptcies will stay on your record for as long as 10 years and make you a very bad credit risk.

* Saving money can save you in case of medical expenses, car repairs and other emergencies.

* Employers often check out your credit report, and a bad one can count against you.

* Too many inquiries without credit (as in cases of teens applying and getting turned down by card companies) is considered bad credit, because all inquiries stay in your record.

* If your card is stolen and you do not report its loss two days after you discover it is missing, you may be responsible for the entire amount charged.

Copyright 2002 Cowles Publishing Company

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