Make smart credit choices in college

There is no better time for one to make crucial decisions about life than during college. Typically these decisions are centered on a major and a resulting career. However, there is one area of life that most college students fail to grasp. When it comes to personal finances, college students generally occupy the bottom ranks. Are debt and the use of debt tools for financial living? Perhaps life and finances wouldn't be so difficult if we disciplined our pocket books.

Debt is sold as a tool to create prosperity. If we want a house or car, we must undertake debt in the form of a credit card or a loan and build credit. This is preached to us so much that we believe it. Debt promoters prey on the willingly ignorant. But you might protest that, "A good credit score resulting from debt is needed in life to purchase many things." Sure, a good credit score is needed if you want to play by the lender's rules. Let's examine just how important a credit score really is.

The first item of purchase that most will scream good credit score for is a house. "You can't get a good interest rate without good credit," one might assert. If we play by the lender's rules and the lender is a bank, then you are stuck to a credit score.

However, just like in the insurance business, if you sought the consultancy of a mortgage underwriter, you'd find that a credit score is really of little persuasion in determining whether or not you get the mortgage. For example, you can qualify for a conventional 15-year, fixed rate mortgage if you rent and have paid your landlord early or on time for two years; if you have been in the same career for two years; if you provide a good down payment (which is more than putting nothing down); etc. Don't buy into the credit game for a mortgage, you don't need it.

How about cars? To have a car, we must have a car loan, right? This loan is awarded on the basis of a good credit score. All a credit score provides is a measure of credit type, amount of debt, and frequency of debt payments. However, the logic of this is faulty - I'll go into debt to get a score that allows me to go into more debt - that's stupid.

It amazes me the amount of people that finance new cars. The average depreciation of a car's value is 60 percent over the first four years. So, let's say you financed a $20,000 car over five years. After that fourth year, it is now worth $8,000 but you continue to pay for it like it is worth $20,000 - and, don't forget the interest. If you owned a business and wanted to invest in something, would this sound like a good investment? A -60 percent return is beyond lousy, but people do it every day.

Even more discouraging, companies these days often hire based on credit scores. I would think an employer would look at someone who has no debt (ultimate fiscal responsibility) and thus no credit score in a higher standing than someone who finances their wants through irresponsibility.

We all are impulse buyers from time to time. Society is built on a foundation of wants. We need to purchase something we can't afford just so we can impress people we don't like. Don't fall prey to debt. Live debt free by using cash and live disciplined within the bounds of a budget. Play by society's rules and you'll end up like society - broke.