Managing Your Money & Banking
Picking a Bank or Credit Union
Opening an Account
Checking and Savings Accounts
Credit Cards and Debit Cards
Money Orders
Payday Loans, Check Cashing and Pawn Shops
Credit
Managing Your Money & Banking
Unless you are planning to stuff all your cash under a mattress or in the old piggy bank (both bad ideas), you may need to open some type of checking and/or savings account at a bank. Some employers may require you to have a bank account so they can “direct deposit” your paycheck. Direct Deposit means that they will deposit your money directly into your bank account instead of giving you an actual check. If you are getting paid by a check, having a bank account will help you avoid check cashing fees that are charged by banks, supermarkets and check cashing stores: 1% or 2% of your check can end up being a lot of money. The good news is that there are more bank options available today than ever before, but that also means that the number of choices can be confusing. The agency that provides Aftercare case management services in the area where you live can help you get a bank account.
Picking a Bank or Credit Union
There is probably a bank with a branch office near where you live or work. A “branch” simply means a bank location you can walk into rather than an automated teller machine (ATM). Although so much banking these days can be done on the Internet, at an ATM or over the phone, it is still useful to be able to walk into an actual place where you can speak face-to-face with a bank employee.
Opening an Account
The big part of choosing a bank or credit union is selecting the one that offers the best account for you, which really depends on your needs and what you will use it for. Don’t assume that all banks are the same or offer the same accounts—they don’t.
Some questions to ask yourself when choosing an account:
- Do you need to be able to write checks (to pay rent, bills, etc.)?
- Do you need checks cashed?
- How do you plan to get your cash out when you need it (ATM or visit a bank branch)?
- Are you good at keeping track of your balance?
- How much money do you have and expect to have? Will you need loans as well?
- Would you like to be review your account online and pay your bills electronically?
Checking and Savings Accounts
Banks usually offer two basic account types: checking and savings. Checking accounts should allow you to take money out more often without fees than a savings account, but savings accounts will pay you a greater interest rate for money that you have in your account. (“Interest” is the money banks pay you for having money in your account at their bank or the amount they charge you to borrow money.) It probably makes the most sense to start with a checking account and, if there are no extra fees, to also open a savings account.
If you have a separate savings account, it will be easier for you to set aside money for important things, like saving for a car or for emergencies (a very good idea). By doing this, you can learn the concept of “paying yourself first”—that is, automatically putting some money into savings before you’re tempted to spend it. Start small if you have to (a few dollars from each paycheck quickly adds up) and gradually build up.
Ask the banks about these things when choosing an account:
Minimum Balances: Some accounts require you to maintain a minimum balance. That means you must have at least a certain amount of money in the account at all times. If your account ever goes below that amount, then you’ll get charged a fee.
Service Charges: Some accounts charge you a monthly fee no matter what. But why bother paying that service charge every month if you can avoid it? There are enough good banks that don’t charge fees that it often does not make sense to pay for one that does. Some examples of service charges are: fees for checks, check cashing fees, deposit fees, wire transfer fees, fees to use a teller, overdraft fees and online banking fees.
ATM Services: Your bank will most likely charge you a fee for using ATMs that don’t belong to them, and some will limit the number of times you can take out cash from your bank’s own ATMs (if you go over that number, you’ll have to pay an additional fee at some banks). So although they’re convenient, ATM’s can be expensive. Although rare, some banks offer free ATMs and will even refund you any charges that other banks charge to use their ATMs. If you think you will use ATMs a lot, be sure to ask about these fees.
Overdraft Fees: An overdraft is when you take out more money from your account than you have in it, like when you write checks adding up to more money than you have in your account. If you have an overdraft, the bank will charge you fees. These fees can quickly add up to hundreds of dollars. So you really need to understand how the bank handles overdrafts, mainly because young adults are more likely to have overdrafts. On a related note, if your check “bounces” because you don’t have enough money in your account, the person to whom you wrote the check may charge you fees on top of what you owe them for the check amount. If you don’t pay them, then the police can charge you with theft. Bouncing checks can result in you having a criminal record, which may also keep you from getting a job or renting an apartment.
Credit Cards and Debit Cards
Once you are an adult, and sometimes even sooner, you may be offered credit cards. Many young adults quickly get into trouble by getting these cards without understanding what happens if they charge purchases but don’t pay their bill in full each month. If you charge a purchase and do not pay your full credit card balance each month, you’ll be charged a very high rate of interest on the unpaid amount. As a result, the amount you owe is likely to grow faster than you can repay. Sometimes, you might even pay more in interest than you paid for whatever you bought with the credit card!
A debit card is slightly different from a credit card. Most ATM cards are debit cards. A debit card is like a credit card, meaning you can “charge” purchases, but differs because the amount you charge is immediately taken out of your bank account. So, with a debit card, you will not have a monthly bill to pay. However, if you do not carefully track your spending, you could end up with an overdraft if you “charge” (or withdraw cash) and write checks for more than you have in your account.
The best advice when starting out usually is to avoid the credit card trap altogether and wait until you are on your feet before getting a credit card. When you decide to get one, it is best to get one through a reputable bank to avoid the scams. Always check to see how much interest you’ll pay if you don’t pay your balance in full every month. Some credit card companies have lower interest rates, so it’s a good idea to look at different companies’ rates to see what’s available.
Money Orders
If you need to pay bills and do not have a checking account, you can get a money order at a grocery store or bank. Remember to keep a copy to prove you gave them the money in case they say you didn’t.
Payday Loans, Check Cashing, and Pawn Shops
More and more businesses are offering check-cashing services and payday loans. These businesses often charge much more than a bank would charge for cashing the same check.
Many of these places also offer “payday loans”—loans of a small amount that you agree to pay out of your next paycheck. When you take out one of these loans, you are usually asked to give them a check that is dated the date of your next payday. The lender will then cash that check as soon as your next payday happens. However, they will charge very large fees, usually about $15 for each $100 you borrow. In other words, if they loan you $200 until your next paycheck (which is probably less than 2 weeks away), then they will charge you $230. It is also important to understand that just because you date a check for two weeks later, that does not stop someone from cashing it before then. If you use these payday loans, it can be hard to catch up due to all the fees you have to pay. Please think hard about whether a payday loan is the best choice for you. You are probably better off waiting until your next paycheck to buy what you want instead of getting a payday loan.
Check cashers may charge you $3 to get your own money. Banks and grocery stores will often cash checks for free.
Pawnshops may give you a little cash for your television, but if you don’t pay them back you will lose your television. This may seem like an easy way to get money quickly, but often does not turn out to be a good idea. If you lost your pawn ticket or have problems, call (800)538- 1579 or visit occc.texas.gov.
Credit
What is a credit report?
A credit report is a report of a person’s financial history. This report is used by companies that lend money to help them determine your ability to repay borrowed money, as well as landlords to see if you will be likely to pay your rent, and by some employers to see how responsible and financially stable you are.
By regularly checking your credit report, you can be sure that it is accurate and watch for identity theft. “Identity theft” is when someone uses your name, Social Security number, and other personal information such as renting apartments and getting utilities, cell phone, credit cards and cable services in your name. Former foster youth are particularly at risk of identity theft because so many people have had access to their personal information and some of those people do things like set up a cell phone plan, turn on utilities and cable service, obtain credit cards, and even rent apartments or get a job in the name of the former foster youth. You can get a free copy of your credit report from all three credit reporting agencies at www.annualcreditreport.com, or by calling (877)322-8228. You can also send your request by mail to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. You will be asked to provide your name, address, Social Security number and date of birth and may be asked other questions to verify your identity.
When you are between the ages of 14–17, CPS is required to run a credit report for you every year and review it. You have the right to review the report as well. If there are any problems with the information on the report, your caseworker is supposed to work with the state CPS office to fix the problems and discuss it with you. If you are 18 or older and in extended foster care, your case worker is supposed to help you run your free credit reports and review it. If there are problems, your caseworker should tell you about how you can try to fix them, but it will be up to you to take the needed steps. Once you leave foster care, you should continue to request your credit report from all three agencies every year. You can request each report at different times of the year so you will catch anything that comes up during the year.
Why does credit matter?
Many people don’t realize or understand what a credit report or credit score is, or how much it can affect your life. People will use your credit history when deciding whether to rent you an apartment, give you a loan or hire you for a job. It can also affect how much you’ll pay for interest charges, insurance and even cell phone contracts.
Your credit report will be broken into a few main sections:
- Information about you, including your name, birth date, Social Security number, employer and spouse. It may list your history of jobs, home ownership, income and previous addresses.
- Payment history includes a list of your accounts with different creditors (like landlords, utilities and credit card companies), how much credit you have, and whether you are current on your payments. If you have an overdue account, it will be listed here.
- List of all creditors or potential employers who have asked for your credit report. If you do not recognize these, it could be a sign of identity theft.
- Public record information including bankruptcies, foreclosures and tax liens.
NOTE: not all credit reports are the same. You should compare the three different reports and check all for any issues.
Correcting Credit Reports and Fixing Bad Credit Scores
Once you get your credit report, check for anything that is wrong. Your credit report should give information on how to work with the credit reporting agencies to fix any errors. If you find problems on your credit report that make you believe that you have been the victim of identify theft, then you must contact the credit reporting agencies immediately. You can get assistance from the Texas Foster Youth Justice Project at (877)313-3688. If you may have been the victim of identity theft, then you may also need to close any bank accounts or credit cards that you currently have open, as well as contact the Federal Trade Commission (FTC) and the local police. The FTC website at www.ftc.gov/idtheft can give you more information about the steps you should take.
If you feel like you can’t get your finances under control, think about talking to a professional credit counselor. Many credit unions, military bases and colleges offer nonprofit counseling programs that help you work with your creditors to come up with a payment plan you can afford. Many creditors are willing to accept smaller payments if you are working to create a plan to repay your debt with a reputable program.
Once you are sure that all of the information on your credit report is accurate, there is no quick or easy way to fix a bad or mediocre credit score. While infomercials or websites may say they can fix credit scores if you pay them, the only legal way to fix your credit score is by improving your credit habits over time. Credit reporting companies report most negative information for seven years and list bankruptcy information for 7–10 years depending on the type of bankruptcy.
What is a credit score?
Your credit score is used to predict whether you will pay your bills. You can check your credit report score when you run your free credit report. But you must pay to get your credit score. Businesses and banks use credit scores to help determine whether to give you credit (such as a loan or credit card) and how much to charge you for it. It takes information about your bill paying history and how much money you owe, and uses a formula to award points for each factor. The score, which can range between 300 and 850, is used to predict how likely you are to repay the loan and make the payments on time. Any score over 700 should let you get the best interest rates for loans. The lower your score, the more difficult it is to get a loan or credit card. Since it costs money to get your credit score, you should only consider doing it when you are planning to rent an apartment or apply for a bank loan.
