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What To Do With Those Loan Refunds…

Written by Tony Marrone

Most of us have the great burden of having to finance our own higher education, and based on the rising cost of private graduate education, many law students are graduating with student loan debt reaching or exceeding the $200,000 mark.

The demanding course-load most law students endure makes it difficult (read: impossible) to go to school and work full-time. In order to help pay monthly expenses and survive with a decent standard of living during law school, I depend on my student loans refund at the beginning of each semester to help the fiancee and I survive.

The question is, how should you allocate the funds?

The Frugal Law Student’s Guide to Getting the Most From Student Loan Refunds

  • Step One: Budget your refund. You’re going to need to decide at the outset how much of your money you can allocate to expenses each month, and make sure your total expenses are less than your refund. I personally use You Need A Budget, I like the fact that it works on both Mac and PC (I use a MacBook, but the fiancee uses a Gateway and an HP). Whatever you decide to use, you won’t get far into the semester if you haven’t budgeted at the outset.
  • Step Two: Place the bulk of your money in a high-interest savings account. ING is running a promotion where you get $25 instantly placed into your account, when you open an account with an initial deposit of $250. (See link here). I use ING because I like their customer service. There are certainly plenty of other banks out there that offer higher interest rates.
  • Step Three: Take advantage of opportunities for free money from banks for opening accounts. The math is simple here: if ING is offering $25 for you to open an account by depositing $250, and Etrade is offering $25 for you to open an account by depositing $100, and you have well over $1,000 in your checking account “doing nothing”, go ahead and open an ING and Etrade account. Most of the promotions only require you to keep your cash in the bank for 30 days if you decide later to close the account.
  • Step Four: Only borrow what you need to live on. I’m not advocating you max-out your Grad Plus and Stafford loans so that you can invest your money in a 4% savings account. Based upon the time-value of money and the high-interest rates we pay on education loans, borrowing more than you need is a losing proposition. Even if you borrow excess money through your loans and invest aggressively and are successful, you’re really only talking about a nominal return, not even taking account the true value of the money you are borrowing (i.e., adjusting for inflation).

You need to plan ahead and be conservative when deciding how much money to borrow to finance your education costs. However, it is even more important to store the borrowed money wisely (not in canisters or buried inside your mattress) so that you can ease the pain that will later be brought on by high-interest rates during repayment.

What’s the Difference Between a Credit Report and a Credit Score?

Written by Brett McKay

You see the commercials all the time on TV. You call a 1-800 number and you get a free credit report. Then the commercial mentions something called a credit score. If you’re not paying attention, you might think that a report and score are the same thing. Well, they’re not. Today we’ll discuss the differences between a credit report and a credit score and why those difference matter to you as a consumer.

What’s a credit report?

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Credit reports explain what you do with your credit. It states when and where you applied for credit, whom you borrowed money from, and whom you still owe. Your credit report also tells you if you’ve paid off a debt and if you make monthly payments on time.

Federal law mandates that all three major credit reporting agencies have to give you a free credit report each year. So, when those TV commercials talk about getting a free credit report, you’ll find out the information discussed above when you apply for one.

There are several sites out there from which you can get a credit report. FreeCreditReport.com and AnnualCreditReport.com are examples of those sites.

What’s a credit score?

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You credit score is determined by the information in your credit report. Credit scores are used by companies and banks to evaluate the potential risk posed by lending consumers money. Your credit score determines if you qualify for a loan, what your loan’s interest rate will, and what your credit limit is.

The company that came up with the idea of a credit score was the Fair Isaac Corporation. That’s why you’ve probably heard credit scores referred to as a FICO score.

Credit scores range from 500 to 850. If you have a FICO score of 500, you’re going to have a hard time trying to get a loan extended to you. Even if you manage to get one, the interest rates will be high. Any score above 720, you’ll receive the best rates available.

Unlike credit reports, which are free, credit scores cost you money to get. They cost about $15 to get access to and you’re given the offer to purchase your credit score after you get a credit report. Bankrate, however, offers a free FICO score estimator. The estimator asks you 10 questions about your loans and credit card balances and then spits out an estimate for your credit score. While not 100% accurate, you’ll at least have an idea of where your score is at and make adjustments in order to improve it.

How your credit score is determined

When coming up with your FICO score, credit reporting companies look at several factors. In no particular order here are some of those factors:

  • Payment record. If you have a record of bills being paid late, your credit score will go down.
  • How much credit you have and how much credit you’re using.
  • How long credit accounts have been open. The longer you have a credit account, the better your score will be.
  • “Hard” Credit Pulls. A pull is a type of inquiry into your credit. Hard credit inquires are made by lenders for the purpose of extending you credit. Inquires by lenders lower your score because lots of hard inquires is a signal that you’re looking for loans and are possibly a poor credit risk.
  • Signs of responsibility and stability. Pay your bills on time, keep your job for longer than two years, and enjoy a higher credit score.

Summary

OK, so the difference between a credit report and credit score boils down to two things: a credit report shows what you’ve done in your credit history; a credit score determines your creditworthiness. A credit report is free; a credit score costs money.

There, now you know the difference between the two. No more getting confused when those commercials come on.

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Additional Resources

There are many ways in which your Credit can be effected, from various bill Payments, like car loans and heating bills to your Business Credit Cards. Your credit score can even be influenced by store credit and Gas Cards that you may have for miscellaneous purposes.